12-i

CHAPTER 12. MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

12.1 INTRODUCTION ......................................................................................................... 12-1

12.2 METHODOLOGY ........................................................................................................ 12-1

12.2.1 Phase I: Industry Profile................................................................................................. 12-2

12.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide........................................ 12-2

12.2.2.1 Industry Cash-Flow Analysis.......................................................................12-2

12.2.2.2 Interview Guides..........................................................................................12-3

12.2.3 Phase III: Subgroup Analysis......................................................................................... 12-3

12.2.3.1 Manufacturing Interviews............................................................................12-3

12.2.3.2 Revised Industry Cash-Flow Analysis.........................................................12-4

12.2.3.3 Manufacturer Subgroup Analysis................................................................12-4

12.2.3.4 Small-Business Manufacturer......................................................................12-4

12.2.3.5 Manufacturing Capacity Impact ..................................................................12-5

12.2.3.6 Employment Impact.....................................................................................12-5

12.2.3.7 Cumulative Regulatory Burden ...................................................................12-6

12.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES.......................................... 12-6

12.3.1 Potentially Large Conversion Costs............................................................................... 12-6

12.3.2 Product Classes.............................................................................................................. 12-7

12.3.3 Wash Performance ......................................................................................................... 12-7

12.3.4 Tub Capacity Measurement ........................................................................................... 12-8

12.3.5 ENERGY STAR............................................................................................................ 12-8

12.4 GRIM INPUTS AND ASSUMPTIONS........................................................................ 12-8

12.4.1 Overview of the GRIM.................................................................................................. 12-8

12.4.2 Sources for GRIM Inputs............................................................................................... 12-9

12.4.2.1 Corporate Annual Reports ...........................................................................12-9

12.4.2.2 Standard and Poor Credit Ratings..............................................................12-10

12.4.2.3 Shipments Model .......................................................................................12-10

12.4.2.4 Engineering Analysis.................................................................................12-10

12.4.2.5 Manufacturer Interviews............................................................................12-10

12.4.3 Financial Parameters.................................................................................................... 12-11

12.4.4 Corporate Discount Rate.............................................................................................. 12-11

12.4.5 Trial Standard Levels................................................................................................... 12-13

12.4.6 NIA Shipments Forecast.............................................................................................. 12-15

12.4.6.1 Base-Case Shipments Forecast ..................................................................12-15

12.4.6.2 Standards-Case Shipments Forecast ..........................................................12-16

12.4.7 Production Costs.......................................................................................................... 12-16

12.4.8 Conversion Costs......................................................................................................... 12-18

12.4.8.1 Residential Clothes Washer Product and Capital Conversion Costs.........12-18

12.4.9 Markup Scenarios ........................................................................................................ 12-23

12.4.9.1 No Commoditization Scenario...................................................................12-24
12-ii

12.4.9.2 Tiered Markup Scenario ............................................................................12-24

12.4.9.3 Tiered Markups with Margin Pressure Markup Scenario..........................12-26

12.5 INDUSTRY FINANCIAL IMPACTS ........................................................................ 12-28

12.5.1 Introduction.................................................................................................................. 12-28

12.5.2 Residential Clothes Washer Industry Financial Impacts............................................. 12-30

12.6 IMPACTS ON SMALL RESIDENTIAL CLOTHES WASHER 

MANUFACTURERS .................................................................................................. 12-33

12.7 OTHER IMPACTS...................................................................................................... 12-34

12.7.1 Employment................................................................................................................. 12-34

12.7.2 Production Capacity..................................................................................................... 12-37

12.7.3 Cumulative Regulatory Burden ................................................................................... 12-38

12.7.3.1 DOE Regulations for Other Products Produced by Residential Clothes 

Washer Manufacturers...............................................................................12-39

12.7.3.2 Other Federal Regulations.........................................................................12-43

12.7.3.3 UL Conversion Costs.................................................................................12-43

12.7.3.4 Other Regulations That Could Impact Residential Clothes Washer 

Manufacturers............................................................................................12-44

12.8 CONCLUSION............................................................................................................ 12-44

12.8.1 Residential Clothes Washers........................................................................................ 12-45

LIST OF TABLES

Table 12.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by 

This Rulemaking................................................................................................ 12-5

Table 12.4.1 GRIM Financial Parameters Based on 1999–2006 Weighted Company 

Financial Data .................................................................................................. 12-11

Table 12.4.2 Cost of Equity Calculation.................................................................................. 12-12

Table 12.4.3 Cost of Debt Calculation..................................................................................... 12-13

Table 12.4.4 Trial Standard Levels for Residential Clothes Washers (Using Appendix J1)... 12-14

Table 12.4.5 Trial Standard Levels for Residential Clothes Washers (Using Appendix J2)... 12-15

Table 12.4.6 Total NIA Shipments Forecast in 2015 in the Reference NIA Shipment 

Scenario (Residential Clothes Washers)......................................................... 12-15

Table 12.4.7 Base-Case Distributions of Efficiencies for Residential Clothes Washers in 

2015.................................................................................................................. 12-16

Table 12.4.8 MPC Breakdown for Standard-Size Top-Loading Clothes Washers ................. 12-17

Table 12.4.9 MPC Breakdown for Standard-Size Front-Loading Clothes Washers............... 12-18

Table 12.4.10 MPC Breakdown for Compact-Size Top-Loading Clothes Washers............... 12-18

Table 12.4.11 MPC Breakdown for Compact-Size Front-Loading Clothes Washers............. 12-18

Table 12.4.12 Product and Capital Conversion Costs for Standard-Size Top-Loading 

Clothes Washers by TSL ................................................................................. 12-20

Table 12.4.13 Product and Capital Conversion Costs for Standard-Size Front-Loading 

Clothes Washers by TSL ................................................................................. 12-21
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Table 12.4.14 Product and Capital Conversion Costs for Compact-Size Top-Loading 

Clothes Washers by TSL ................................................................................. 12-22

Table 12.4.15 Product and Capital Conversion Costs for Compact-Size Front-Loading 

Clothes Washers by TSL ................................................................................. 12-23

Table 12.4.16 Tiered Markups for Standard-Size Top-Loading Clothes Washers.................. 12-25

Table 12.4.17 Tiered Markups for Standard-Size Front-Loading Clothes Washers ............... 12-25

Table 12.4.18 Tiered Markups for Compact-Size Top-Loading Clothes Washers ................. 12-26

Table 12.4.19 Tiered Markups for Compact-Size Front-Loading Clothes Washers............... 12-26

Table 12.4.20 Tiered Markups with Margin Pressure Markup for Standard-Size TopLoading Clothes Washers................................................................................ 12-27

Table 12.4.21 Tiered Markups with Margin Pressure Markup for Standard-Size FrontLoading Clothes Washers................................................................................ 12-27

Table 12.4.22 Tiered Markups with Margin Pressure Markup for Compact-Size TopLoading Clothes Washers................................................................................ 12-28

Table 12.4.23 Tiered Markups with Margin Pressure Markup for Compact-Size FrontLoading Clothes Washers................................................................................ 12-28

Table 12.5.1 Manufacturer Impact Analysis for Residential Clothes Washers – No 

Commoditization Markup Scenario................................................................. 12-30

Table 12.5.2 Manufacturer Impact Analysis for Residential Clothes Washers – Tiered 

Markup Scenario.............................................................................................. 12-30

Table 12.5.3 Manufacturer Impact Analysis for Residential Clothes Washers – Tiered 

Markup Scenario with Margin Impacts ........................................................... 12-30

Table 12.7.1 Potential Changes in the Total Number of Domestic Residential Clothes 

Washer Production Workers in 2015............................................................... 12-36

Table 12.7.2 Other DOE and Federal Actions Affecting the Residential Clothes Washer 

Industry ............................................................................................................ 12-40

Table 12.7.3 DOE Regulations on Products For Which Residential Clothes Washer 

Manufacturers Hold Significant Market Share ................................................ 12-42

Table 12.7.4 Other Covered Products For Which Residential Clothes Washer 

Manufacturer Market Share Data Is Unavailable. ........................................... 12-43

LIST OF FIGURES

Figure 12.4.1 Using the GRIM to Calculate Cash Flow............................................................ 12-9

Figure 12.5.1 Annual Industry Net Cash Flows for Residential Clothes Washers (No 

Commoditization Markup Scenario)................................................................ 12-31

Figure 12.5.2 Annual Industry Net Cash Flows for Residential Clothes Washers (Tiered 

Markup Scenario)............................................................................................. 12-32

Figure 12.5.3 Annual Industry Net Cash Flows for Residential Clothes Washers (Tiered 

Markup Scenario with Margin Impacts).......................................................... 12-33

Figure 12.7.1 Total Residential Clothes Washer Industry Domestic Employment by Year... 12-37
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CHAPTER 12. MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

In determining whether a standard is economically justified, the U.S. Department of 

Energy (DOE) is required to consider “the economic impact of the standard on the manufacturers 

and on the consumers of the products subject to such a standard.” (42 U.S.C. 6295(o)(2)(B)(i)) 

The law also calls for an assessment of the impact of any lessening of competition as determined 

in writing by the Attorney General. Id. DOE conducted a manufacturer impact analysis (MIA) to 

estimate the financial impact of more stringent energy conservation standards on manufacturers 

of residential clothes washers, and assessed the impact of such standards on direct employment 

and manufacturing capacity.

The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA 

primarily relies on the Government Regulatory Impact Model (GRIM), an industry cash-flow 

model adapted for each product in this rulemaking. The GRIM inputs include information on 

industry cost structure, shipments, and pricing strategies. The GRIM’s key output is the industry 

net present value (INPV). The model estimates the financial impact of more stringent energy 

conservation standards by comparing changes in INPV between a base case and the various trial 

standard levels (TSLs) in the standards case. The qualitative part of the MIA addresses product 

characteristics, manufacturer characteristics, market and product trends, as well as the impact of 

standards on subgroups of manufacturers.

12.2 METHODOLOGY

DOE conducted the MIA in three phases. Phase I, “Industry Profile,” consisted of 

preliminary research directed at characterizing the residential clothes washer industry. This 

research involved collecting data on market share, sales volumes and trends, pricing, 

employment, and the industry financial structure.

In Phase II, “Industry Cash Flow,” DOE created a GRIM for residential clothes washers

to model the economic impact of amended energy conservation standards to the residential 

clothes washer industry as a whole. The DOE also developed manufacturer interview guides to 

gather additional information on the potential impacts on manufacturers in Phase III.

In Phase III, “Subgroup Impact Analysis,” DOE interviewed manufacturers representing 

over 85 percent of residential clothes washers. Interviewees included manufacturers with various 

market shares and product focus, providing a representative cross-section of the industries. 

During interviews, DOE discussed financial topics specific to each manufacturer and obtained 

each manufacturer’s view of the industry. The interviews provided DOE with valuable 
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information for evaluating the impacts of amended energy conservation standards on 

manufacturer cash flows, investments, and employment.

12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE prepared a profile of the residential clothes washer industry

that built upon the market and technology assessment prepared for this rulemaking. (See chapter 

3 of this Technical Support Document (TSD)). Before initiating the detailed impact studies, DOE 

collected information on the present and past market structure and characteristics of the industry

tracking trends in market share, product attributes, product shipments, manufacturer markups, 

and the cost structure for various manufacturers.

The profile also included a top-down analysis of manufacturers in the industry using

Security and Exchange Commission 10–K filings,

a

Standard & Poor’s stock reports,band 

corporate annual reports released by both public and privately held companies. DOE used this 

and other publicly available information to derive preliminary financial inputs for the GRIM 

(e.g. revenues, cost of goods sold; depreciation; selling, general and administrative expenses 

(SG&A); and research and development (R&D) expenses).

12.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide

Phase II focused on the financial impacts of amended energy conservation standards on 

the residential clothes washer industry as a whole. Amended energy conservation standards can 

affect manufacturer cash flows in three distinct ways: (1) by creating a need for increased 

investment, (2) by raising production costs per unit, and (3) by altering revenue due to higher 

per-unit prices and/or possible changes in sales volumes. DOE used the GRIM to model these 

effects in a cash-flow analysis for the residential clothes washer industry. In performing this 

analysis, DOE used the financial values derived during Phase 1 and the shipment assumptions 

from the NIA. In addition to the cash-flow analysis, DOE also prepared written guides for 

manufacturer interviews as part of Phase II.

12.2.2.1 Industry Cash-Flow Analysis

The GRIM uses several factors to determine a series of annual cash flows from the 

announcement year of amended energy conservation standards until several years after the 

standards’ compliance date. These factors include annual expected revenues, costs of sales, 

SG&A, taxes, and capital expenditures related to the amended standards. Inputs to the GRIM 

include manufacturing costs, markups, and shipment forecasts developed in other analyses. DOE 

derived the manufacturing costs from the engineering analysis, information provided by the 

industry, publicly available financial reports, and interviews with manufacturers. DOE developed 

 

a Available online at www.sec.gov.

b Available online at www2.standardandpoors.com.
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alternative markup scenarios for each GRIM based on discussions with manufacturers. DOE’s 

shipments analysis, presented in chapter 10 of this TSD, provided the basis for the shipment 

projections in each GRIM. The financial parameters were developed using publicly available 

manufacturer data and were revised with information submitted confidentially during 

manufacturer interviews. DOE used the GRIM to compare in industry net present value (INPV)

in the base case with INPV at various TSLs (the standards cases). The difference in INPV 

between the base and standards cases represents the financial impact of the amended standard on 

manufacturers.

12.2.2.2 Interview Guides

During Phase III of the MIA, DOE interviewed manufacturers to gather information on 

the effects of amended energy conservation on revenues and finances, direct employment, capital 

assets, and industry competitiveness. Before the interviews, DOE distributed interview guides for 

residential clothes washers. The interview guides provided a starting point to help identify 

relevant issues and understand the impacts of amended energy conservation standards on 

individual manufacturers or subgroups of manufacturers. Most of the information DOE received 

from these meetings is protected by non-disclosure agreements and resides with DOE’s 

contractors. Before each telephone interview or site visit, DOE provided company 

representatives with an interview guide that included the topics for which DOE sought input. The 

MIA interview topics included (1) key issues to this rulemaking; (2) engineering and life cycle 

cost follow-up; (3) manufacturer markups and profitability; (4) financial parameters; and (5) 

conversion costs. The interview guides are presented in appendix 12-A.

12.2.3 Phase III: Subgroup Analysis

While conducting the MIA, DOE interviewed a representative cross-section of residential 

clothes washer manufacturers. The MIA interviews broadened the discussion to include 

business-related topics. DOE sought to obtain feedback from industry on the approaches used in 

the GRIM and to isolate key issues and concerns. During interviews, DOE did not identify any 

manufacturer subgroups that would warrant a subgroup analysis.

12.2.3.1 Manufacturing Interviews

The information gathered in Phase I and the cash-flow analysis performed in Phase II are 

supplemented with information gathered from manufacturer interviews in Phase III. The 

interview process provides an opportunity for interested parties to express their views on 

important issues privately, allowing confidential or sensitive information to be considered in the 

rulemaking process.

DOE used these interviews to tailor each GRIM to reflect unique financial characteristics 

of each product group. Within each manufacturer group, DOE contacted companies from its 

database of manufacturers. Companies with various market shares and product focus were 
12-4

interviewed to provide a representation of the industry. Interviews were scheduled well in 

advance to provide every opportunity for key individuals to be available for comment. Although 

a written response to the questionnaire was acceptable, DOE sought interactive interviews, which 

help clarify responses and identify additional issues. The resulting information provides valuable 

inputs to the GRIM.

12.2.3.2 Revised Industry Cash-Flow Analysis

In Phase II of the MIA, DOE provided manufacturers with preliminary GRIM input 

financial figures for review and evaluation. During the interviews, DOE requested comments on 

the values it selected for the parameters. DOE revised its industry cash-flow models based on 

this feedback. Section 12.4.3 provides more information on how DOE calculated the parameters.

12.2.3.3 Manufacturer Subgroup Analysis

Using average cost assumptions to develop an industry cash flow estimate may not 

adequately assess differential impacts of amended energy conservation standards on

manufacturer subgroups. For example, small businesses, manufacturers of niche products, or 

companies exhibiting a cost structure that differs significantly from the industry average could be 

more negatively affected. DOE uses the results of the industry characterization to group 

manufacturers exhibiting similar characteristics. During the interviews, DOE discussed the 

potential subgroups and subgroup members it identified for the analysis. DOE asked 

manufacturers and other interested parties to suggest what subgroups or characteristics are the 

most appropriate to analyze. As discussed below, since DOE only identified one small business 

manufacturer, DOE did not conduct a separate subgroup analysis of small business 

manufacturers.

12.2.3.4 Small-Business Manufacturer

DOE used the Small Business Administration (SBA) small business size standards 

published on August 22, 2008, as amended, and the North American Industry Classification 

System (NAICS) code, presented in Table 12.2.1 to determine whether any small entities would 

be affected by the rulemaking.cFor the product classes under review, the SBA bases its small 

business definition on the total number of employees for a business, its subsidiaries, and its 

parent companies. An aggregated business entity with fewer employees than the listed limit is 

considered a small business.

 

c The size standards are available on the SBA’s website at 

www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
12-5

Table 12.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by 

This Rulemaking

Industry Description Revenue Limit Employee Limit NAICS

Household Laundry Equipment 

Manufacturing

N/A 1000 335224 

DOE used the Association of Home Appliance Manufacturers (AHAM)1 member 

directory as well as public certification databases including the Consortium of Energy Efficiency 

(CEE),2 California Energy Commission (CEC),3and ENERGY STAR4to identify manufacturers 

of residential clothes washers. DOE then checked this list of clothes washer manufacturers 

against the employee limit for small businesses using reports from vendors such as Dun &

Bradstreet. DOE also consulted publicly available data from the Small Business Association 

(SBA) to determine the presence of any additional small businesses in the industry. Further, 

DOE asked interested parties and industry representatives if they were aware of other small 

business manufacturers and checked any companies identified against the small business criteria.

During its research, DOE identified one small business that manufactures products covered by 

this rulemaking and meets the criteria as specified by the SBA. DOE conducted an analysis of 

potential impacts of increased energy efficiency standards on this manufacturer. Section 12.6

provides the details of this analysis.

12.2.3.5 Manufacturing Capacity Impact

One significant outcome of amended energy conservation standards could be the 

obsolescence of existing manufacturing assets, including tooling and production equipment. The 

manufacturer interview guides have a series of questions to help identify impacts of amended 

standards on manufacturing capacity, specifically capacity utilization and plant location 

decisions in the United States and North America, with and without amended standards; the 

ability of manufacturers to upgrade or remodel existing facilities to accommodate the new 

requirements; the nature and value of any stranded assets; and estimates for any one-time 

changes to existing plant, property, and equipment (PPE). DOE’s estimates of the one-time 

capital changes and stranded assets affect the cash flow estimates in the GRIMs. These estimates 

can be found in section 12.4.8; DOE’s discussion of the capacity impact can be found in section 

12.7.2.

12.2.3.6 Employment Impact

The impact of amended energy conservation standards on employment is an important 

consideration in the rulemaking process. To assess how domestic direct employment patterns 

might be affected, the interviews explored current employment trends in the residential clothes 

washer industry. The interviews also solicited manufacturer views on changes in employment 

patterns that may result from more stringent standards. The employment impacts section of the 

interview guide focused on current employment levels associated with manufacturers at each 

production facility, expected future employment levels with and without amended energy 
12-6

conservation standards, and differences in workforce skills and issues related to the retraining of 

employees. The employment impacts are reported in section 12.7.1.

12.2.3.7 Cumulative Regulatory Burden

DOE seeks to mitigate the overlapping effects on manufacturers due to amended energy 

conservation standards and other regulatory actions affecting the same products. DOE analyzed 

the impact on manufacturers of multiple, product-specific regulatory actions. Based on its own 

research and discussions with manufacturers, DOE identified regulations relevant to residential 

clothes washer manufacturers, such as State regulations and other Federal regulations that impact 

other products made by the same manufacturers. Discussion of the cumulative regulatory burden 

can be found in section 12.7.3.

12.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES

Each MIA interview starts by asking: “What are the key issues for your company 

regarding the energy conservation standard rulemaking?” This question prompts manufacturers 

to identify the issues they feel DOE should explore and discuss further during the interview. The 

following section describes key issues manufacturers mentioned for all product classes under 

review.

12.3.1 Potentially Large Conversion Costs

Manufacturers indicated that they were greatly concerned about the potential for this 

rulemaking to require significant product and capital conversion costs. Introducing new 

residential clothes washer platforms involves very large upfront costs. These capital and product 

development costs can be justified because a basic platform typically undergoes incremental 

changes over a number design cycles and the initial investment can be at least partially spread 

over all these shipments. Many of the existing residential clothes washer platforms have some 

designs options available that would only necessitate these incremental types of changes. 

However, substantially higher efficiencies could potentially necessitate a drum or cabinet 

capacity change. In this case, rather than altering the current platform, the required changes are 

more in line with designing a completely new platform. A new platform would require replacing 

most production equipment at a very large capital cost. Manufacturers also indicated that these 

initial costs for a new basic platform could result in a substantial shift in employment. Some 

manufacturers were also concerned that devoting resources to efficiency improvements could 

hurt their products in the market because these efforts could come at the expense of other 

features.
12-7

12.3.2 Product Classes

Manufacturers were divided on the need to retain top-loading and front-loading standardsize product classes. In general, manufacturers that produce top-loading clothes washers favored 

retaining the two distinct product classes. Manufacturers that produce only front-loading clothes 

washers were less concerned with maintaining the method of access as a product class 

distinction.

While all manufacturers agreed front-loading clothes washers are an important product 

offering, many manufacturers also stated that top-loading clothes washers are an important 

option for consumers because they offer the following benefits:

 Shorter cycle times

 Lower price points

 Lower installation costs because they do not require a pedestal

 Easier loading

 Easier access to add garments mid-cycle

 Less floor vibration

Some manufacturers in favor of maintaining the separate product classes also stated that 

eliminating top-loading clothes washers would harm lower-income customers who typically 

purchase baseline clothes washers. In addition, because front-loading clothes washers are mature 

in the marketplace, consumers are aware of the benefits of top-loading clothes washers, high 

efficiency top-loading products, and front-loading clothes washers and have the ability to choose 

higher efficiency products in either configuration.

12.3.3 Wash Performance

Manufacturers were concerned that efficiency gains over time have limited the potential 

to improve efficiency without possibly decreasing wash performance and negatively impacting 

consumer utility. Many manufacturers were concerned that a test procedure that did not take a 

minimum wash performance into consideration, coupled with a more stringent energy 

conservation standard, could force manufacturers to limit water consumption to a level that 

would harm consumers. For example, over-sudsing could be more commonplace. Also, water 

levels could be reduced to the point where cold water would no longer sufficiently clean clothes. 

Either one of these issues would result in lost energy savings as consumers either rewashed 

clothes or no longer selected cold water wash cycles. Consequently, many manufacturers 

supported adding a performance metric to the test procedure to ensure that consumers would 

genuinely benefit from improved efficiency.
12-8

12.3.4 Tub Capacity Measurement

Many manufacturers mentioned that different companies use inconsistent approaches in 

measuring tub capacity. While manufacturers offered slightly different suggestions for how to 

measure capacity, most were supportive of eliminating the ambiguity. Manufacturers hoped this 

issue would be resolved before the implementation of these amended energy conservation 

standards because both the modified energy factor and water factor calculations depend on 

measured capacity.

12.3.5 ENERGY STAR

One manufacturer mentioned an unwillingness to design new residential clothes washers 

that just meet the baseline compliance level. This manufacturer exclusively produces clothes 

washers that meet ENERGY STAR specifications. Because of their overall energy strategy, they 

must take into consideration ENERGY STAR levels when designing new clothes washers in 

order to remain competitive in that market segment. This manufacturer mentioned that the costs 

associated with designing new products to meet ENERGY STAR levels were not reflected in 

DOE’s incremental cost tables.

Another manufacturer mentioned that ENERGY STAR compliance is an important 

purchasing factor, especially in the front-loading clothes washer market. The manufacturer 

expressed concern that standards that are too aggressive could jeopardize the future of the 

ENERGY STAR program for residential clothes washers. In turn, that could impact local rebates 

that enable manufacturers to offer products that meet the minimum efficiency standards.

12.4 GRIM INPUTS AND ASSUMPTIONS

The GRIM serves as the main tool for assessing the impacts on industry due to amended 

energy conservation standards. DOE relies on several sources to obtain inputs for the GRIM. 

Data and assumptions from these sources are then fed into an accounting model that calculates 

the industry cash flow both with and without amended energy conservation standards.

12.4.1 Overview of the GRIM

The basic structure of the GRIM, illustrated in Figure 12.4.1, is an annual cash flow 

analysis that uses manufacturer prices, manufacturing costs, shipments, and industry financial 

information as inputs, and accepts a set of regulatory conditions such as changes in costs, 

investments, and associated margins. The GRIM spreadsheet uses a number of inputs to arrive at 

a series of annual cash flows, beginning with the base year of the analysis, 2011, and continuing 

to 2044. The model calculates the INPV by summing the stream of annual discounted cash flows 

during this period.5
12-9

Figure 12.4.1 Using the GRIM to Calculate Cash Flow

The GRIM projects cash flows using standard accounting principles and compares 

changes in INPV between the base-case and the standard-case scenario induced by amended 

energy conservation standards. The difference in INPV between the base case and the standard 

case(s) represents the estimated financial impact of the amended energy conservation standard on 

manufacturers. Appendix 12-A provides more technical details and user information for the 

GRIM.

12.4.2 Sources for GRIM Inputs

The GRIM uses several different sources for data inputs in determining industry cash 

flow. These sources include corporate annual reports, company profiles, U.S. Census data, credit 

ratings, the shipments model, the engineering analysis, and the manufacturer interviews.

12.4.2.1 Corporate Annual Reports

Corporate annual reports for publicly held companies are freely available to the general 

public through the SEC as filings of form 10-K. Additionally, some privately held companies 

publish annual financial reports which are regularly available on their corporate websites. DOE 

developed initial financial inputs to the GRIM by examining the publicly available annual 

reports of companies primarily engaged in the manufacture of home appliances and whose 

combined product range includes residential clothes washers. Because these companies produce 

a range of different products, DOE initially assumed that the industry average figures calculated 

for these companies were representative of manufacturing for residential clothes washers. Since 

these companies do not provide detailed information about their individual product lines, DOE 

used the financial information for the entire companies in developing its initial estimates of the 

financial parameters in both GRIM analyses. These figures were later revised using feedback 

from interviews to be representative of manufacturing for each product. DOE used corporate 

annual reports to derive the following initial inputs to the GRIM: 

 Tax rate
12-10

 Working capital

 SG&A

 R&D

 Depreciation

 Capital expenditures

 Net PPE

12.4.2.2 Standard and Poor Credit Ratings

Standard and Poor (S&P) provides independent credit ratings, research, and financial 

information. DOE relied on S&P reports to determine the industry’s average cost of debt when 

calculating the weighted average cost of capital.

12.4.2.3 Shipments Model

The GRIM used shipment projections derived from DOE’s shipments model in the 

national impact analysis (NIA). The model relied on historical shipments data for residential 

clothes washers. Chapter 10 of the TSD describes the methodology and analytical model DOE 

used to forecast shipments.

12.4.2.4 Engineering Analysis

DOE conducted the engineering analyses for this rulemaking using the efficiency-level 

approach, combined with the cost-assessment approach, to develop a cost for each efficiency 

level for residential clothes washers. During this analysis, DOE used a manufacturing cost model 

to develop manufacturer production cost (MPC) estimates for residential clothes washers. The 

analysis yielded the labor, materials, overhead, and total production costs for products at each 

efficiency level. The engineering analysis also estimated a manufacturer markup to determine the 

manufacturer selling price (MSP) for each product at every efficiency level. Chapter 5 of this 

TSD describes the engineering analysis in detail.

12.4.2.5 Manufacturer Interviews

During the course of the MIA, DOE conducted interviews with a representative crosssection of manufacturers. DOE also interviewed manufacturers representing a significant portion 

of sales in every product class. During these discussions, DOE obtained information to determine 

and verify GRIM input assumptions in each industry. Key topics discussed during the interviews 

and reflected in the GRIM include:

 Capital conversion costs (one-time investments in PPE);

 Product conversion costs (one-time investments in research, product development, 

testing, and marketing);
12-11

 Product cost structure, or the portion of the MPCs related to materials, labor, overhead, 

and depreciation costs;

 Projected total shipment and shipment distribution mix; and

 MPCs estimated in the engineering analysis.

12.4.3 Financial Parameters

In the manufacturer interviews, DOE used the financial parameters from 2004 to 2009 for 

appliance manufacturers as a starting point for determining the residential clothes washer 

industry financial parameters. These initial estimates were used because many of the same white 

goods manufacturers produce a number of different product lines (including clothes washers, 

cooking products, clothes dryers, and room air conditioners) and no other publicly available SEC 

10-K reports for residential clothes washer manufacturers were available. These financial 

parameters were determined by averaging the values in the annual reports of three publicly 

traded companies engaged in manufacturing and selling clothes washers over an 8-year period 

spanning from 1999 through 2006. Table 12.4.1 below shows the data used to determine the 

initial financial parameter estimates.

Table 12.4.1 GRIM Financial Parameters Based on 1999–2006 Weighted Company 

Financial Data

Parameter

IndustryWeighted 

Average

Manufacturer

A B C D

Tax Rate (% of Taxable Income) 34.3 33.5 47.3 22.5 33.3

Working Capital (% of Revenue) 6.5 12.1 10.8 14.2 3.6

SG&A (% of Revenue) 11.3 13.7 17.9 9.8 10.0

R&D (% of Revenues) 2.2 2.3 1.9 1.0 2.3

Depreciation (% of Revenues) 4.7 2.9 22.5 2.8 3.0

Capital Expenditures (% of Revenues) 2.7 1.6 3.1 4.3 3.2

Net Property, Plant, and Equipment 

(% of Revenues) 17.7 16.7 14.9 24.9 17.4

During interviews, manufacturers were asked to provide their own figures for the 

parameters listed in Table 12.4.1. DOE adjusted the depreciation and capital expenditures 

according to the manufacturers’ feedback.

12.4.4 Corporate Discount Rate

DOE used the weighted-average cost of capital (WACC) as the discount rate to calculate 

the INPV. A company’s assets are financed by a combination of debt and equity. The WACC is 

the total cost of debt and equity weighted by their respective proportions in the capital structure 

of the industry. DOE estimated the WACC for the residential clothes washer industry based on 

several representative companies, using the following formula:

WACC = After-Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio) Eq. 1
12-12

The cost of equity is the rate of return that equity investors (including, potentially, the 

company) expect to earn on a company’s stock. These expectations are reflected in the market 

price of the company’s stock. The capital asset pricing model (CAPM) provides one widely used 

means to estimate the cost of equity. According to the CAPM, the cost of equity (expected 

return) is:

Cost of Equity = Riskless Rate of Return + β x Risk Premium Eq. 2

where:

Riskless rate of return is the rate of return on a “safe” benchmark investment, typically 

considered the short-term Treasury Bill (T-Bill) yield.

Risk premium is the difference between the expected return on stocks and the riskless 

rate.

Beta (β) is the correlation between the movement in the price of the stock and that of the 

broader market. In this case, Beta equals one if the stock is perfectly correlated with the S&P 500 

market index. A Beta lower than one means the stock is less volatile than the market index.

DOE determined that the industry average cost of equity for the residential clothes 

washer industry is 20.6 percent (Table 12.4.2).

Table 12.4.2 Cost of Equity Calculation

Parameter

IndustryWeighted 

Average 

%

Manufacturer

A B C D

(1) Average Beta

(2002-2006 year) 1.79 1.0 1.46 1.80 1.99

(2) Yield on 10-Year 

T-Bill (1990-2007)

4.13 - - - -

(3) Market Risk Premium 

(1926-1999) 9.2 - - - -

Cost of Equity (2)+[(1)*(3)] 20.6 - - - -

Equity/Total Capital 37.2 38.2 64.8 75.0 59.4

Bond ratings are a tool to measure default risk and arrive at a cost of debt. Each bond 

rating is associated with a particular spread. One way of estimating a company’s cost of debt is 

to treat it as a spread (usually expressed in basis points) over the risk-free rate. DOE used this 

method to calculate the cost of debt for all three manufacturers by using S&P ratings and adding 

the relevant spread to the risk-free rate.
12-13

In practice, investors use a variety of different maturity Treasury bonds to estimate the 

risk-free rate. DOE used the 10-year Treasury bond return because it captures long-term inflation 

expectations and is less volatile than short-term rates. The risk free rate is estimated to be 

approximately 4 percent, which is the average 10-year Treasury bond return between 1990 and 

2007 (the analysis period used in the initial estimate for commercial clothes washers).

For the cost of debt, S&P’s Credit Services provided the average spread of corporate 

bonds for the three public manufacturers between 2002 and 2006. As stated above, the 

representative data was taken from the commercial clothes washer final rule since several of the 

representative manufacturers are the same as in the residential clothes washer industry. DOE 

added the industry-weighted average spread to the average T-Bill yield over the same period. 

Since proceeds from debt issuance are tax deductible, DOE adjusted the gross cost of debt by the 

industry average tax rate to determine the net cost of debt for the industry. Table 12.4.3 presents 

the derivation of the cost of debt and the capital structure of the industry (i.e. the debt ratio 

(debt/total capital)).

Table 12.4.3 Cost of Debt Calculation

Parameter

IndustryWeighted 

Average 

%

Manufacturer

A B C D

S&P Bond Rating -- B BBB BB B+

(1) Yield on 10-Year 

T-Bill (1990-2006) 4.3 - - - -

(2) Gross Cost of Debt 8.6 9.78 6.63 7.78 8.63

(3) Tax Rate 34.3 33.5 47.3 22.5 33.3

Net Cost of Debt 

(2) x ((1)-(3)) 5.7 - - - -

Debt/Total Capital 32.9 38.2 64.8 75.0 59.4

Using public information for these three companies from the commercial clothes washer 

final rule, the initial estimate for the residential clothes washer industry’s WACC was 

approximately 10.1 percent. Subtracting an inflation rate of 2.9 percent over the analysis period 

used in the initial estimate, the inflation-adjusted WACC and the initial estimate of the discount 

rate used in the straw-man GRIM is 8.0 percent. DOE also asked for feedback on the 8.0 percent 

discount during manufacturer interviews and slightly adjusted this figure for the residential 

clothes washers’ GRIM.

12.4.5 Trial Standard Levels

DOE developed TSLs for residential clothes washers. For residential clothes washers, 

DOE analyzed four product classes – standard top-loading residential clothes washers, standard 

front-loading residential clothes washers, compact top-loading residential clothes washers, and 

compact front-loading residential clothes washers. Table 12.4.4 presents the TSLs and the 
12-14

corresponding product class efficiency levels for residential clothes washers based on modified 

energy factor (MEF) and water factor (WF) according to the current test procedure (appendix 

J1). Table 12.4.5 presents the TSLs and the corresponding product class efficiency levels based 

on integrated modified energy factor (IMEF) and integrated water factor (WF) according to the 

revised test procedure (appendix J2) published in the Federal Register on March 7, 2012. 77 FR 

13888.

TSL 1 consists of the efficiency levels that are two steps up in efficiency (EL 2) from the 

baseline levels for standard clothes washers, and one step up in efficiency (EL 1) from baseline 

levels for compact products. For standard clothes washers, TSL 2 represents an intermediary 

point between the efficiency levels chosen for TSL 1 and the efficiency levels recommended in 

the Joint Petition, and maintains the same efficiency levels for compact products as in TSL 1. 

TSL 3 consists of the efficiency levels recommended in a joint petition submitted by interested 

parties to DOEd(“Joint Petition”). The Joint Petition proposes energy efficiency standards for 

four residential clothes washer product classes. In the case of TSL 3, for top-loading standard 

clothes washers, a first tier of standards would apply starting in 2015, a second, more stringent 

tier would apply starting in 2018. TSL 4 consists of the efficiency levels that are one level below 

(EL 7) the max-tech efficiency levels (EL 8) for standard clothes washers, and the max-tech 

efficiency levels for both compact product classes. TSL 5 consists of the max-tech efficiency 

levels for all product classes.

Table 12.4.4 Trial Standard Levels for Residential Clothes Washers (Using Appendix J1)

Product Class Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Standard-Size Top-Loading MEF 1.26 1.72 1.80 2.00 2.26 2.47

WF 9.50 8.00 7.50 6.00 4.48 3.60

Standard-Size Front-Loading MEF 1.72 1.72 2.00 2.20 2.60 2.89

WF 8.00 8.00 6.00 4.50 3.80 3.20

Compact Top-Loading MEF 0.77 1.26 1.26 1.81 1.81 1.81

WF 14.0 14.0 14.0 11.6 11.6 11.6

Compact-Size Front-Loading MEF 1.60 1.72 1.72 1.72 1.72 1.72

WF 8.5 8.0 8.0 8.0 8.0 8.0

* See 10 CFR part 430 (31 October 2003), pp. 62198 – 62204 

 

d

“Agreement on Minimum Federal Efficiency Standards, Smart Appliances, Federal Incentives and Related Matters 

for Specified Appliances,” DOE Docket No. EERE–2008–BT–STD–0019, Comment 32. DOE considered the Joint 

Petitioners’ comments to supersede earlier comments by the listed parties regarding issues subsequently discussed in 

the Joint Petition.
12-15

Table 12.4.5 Trial Standard Levels for Residential Clothes Washers (Using Appendix J2)

Product Class Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Standard-Size Top-Loading IMEF 0.84 1.29 1.37 1.57 1.83 2.04

IWF 9.92 8.44 7.95 6.47 4.96 4.10

Standard-Size Front-Loading IMEF 1.37 1.41 1.66 1.84 2.20 2.46

IWF 8.31 8.31 6.26 4.73 4.01 3.39

Compact Top-Loading IMEF 0.59 0.86 0.86 1.15 1.15 1.15

IWF 14.4 14.4 14.4 12.0 12.0 12.0

Compact-Size Front-Loading IMEF 1.03 1.13 1.13 1.13 1.13 1.13

IWF 8.8 8.3 8.3 8.3 8.3 8.3

* See 10 CFR part 430 (21 September 2010), pp. 57556 - 57595 

12.4.6 NIA Shipments Forecast

The GRIM estimates manufacturer revenues based on total-unit-shipments forecasts and 

the distribution of these values by efficiency level. Changes in the efficiency mix at each 

standard level are a key driver of manufacturer finances. For this analysis, the GRIM used the 

NIA shipments forecasts from 2011 to 2044 for residential clothes washers. Chapter 10 of the 

TSD explains DOE’s calculations of total shipments in detail. Table 12.4.6 shows total 

shipments forecasted in the shipments analysis for residential clothes washers in 2015.

Table 12.4.6 Total NIA Shipments Forecast in 2015 in the Reference NIA Shipment 

Scenario (Residential Clothes Washers)

Product Class Total Industry Shipments

Standard-Size Top-Loading 4,324,091

Standard-Size Front-Loading 5,158,278

Compact-Size Top-Loading 95,984

Compact-Size Front-Loading 20,000

12.4.6.1 Base-Case Shipments Forecast

As part of the shipments analysis, DOE estimated the shipment distributions by 

efficiency level for residential clothes washers. DOE held the base-case energy efficiency 

distributions constant throughout the forecast period. Table 12.4.7 shows the base-case 

distributions of shipments by efficiency level estimated in the NIA for the residential clothes 

washer product classes. 
12-16

Table 12.4.7 Base-Case Distributions of Efficiencies for Residential Clothes Washers in 

2015

Product Class Baseline EL 1 EL 2 EL 3 EL 4 EL 5 EL 6 EL 7 EL 8

Standard-Size 

Top-Loading 

IMEF 0.84 0.98 1.29 1.34 1.34 1.37 1.57 1.83 2.04

% of the 

Market at EL 43.6 43.6 1.9 0.6 0.6 0.6 4.6 4.6 0.0

Standard-Size 

Front-Loading 

IMEF 1.37 1.39 1.41 1.49 1.66 1.84 2.02 2.20 2.46

% of the 

Market at EL 0.0 0.0 0.0 4.3 24.0 48.9 11.4 11.4 0.0

Compact-Size

Top-Loading

IMEF 0.59 0.86 1.15

% of the 

Market at EL 100.0 0.0 0.0

Compact-Size 

Front Loading

IMEF 1.03 1.13

% of the 

Market at EL 100.0 0.0

12.4.6.2 Standards-Case Shipments Forecast

To examine the effects of amended energy conservation standards on shipments, which 

affect the INPV, DOE used the base-case shipments described in the previous section. For the 

standards case, DOE used the shipments developed in the NIA for residential clothes washers. 

DOE used a roll-up scenario to determine efficiency distributions for the standards case. In this 

scenario, products that fall below the amended energy conservation standard are assumed to 

“roll-up” to the new standard in 2015.

DOE also assumed there was relative price elasticity in the residential clothes washer market, 

meaning that amended energy conservation standards that increase the first cost of residential 

clothes washers would result in lower total shipments.

12.4.7 Production Costs

The changes in the MPCs of the analyzed products can affect revenues, gross margins, 

and cash flow of the industry, making these product cost data key GRIM inputs for DOE’s 

analysis.DOE used the manufacturer production costs (MPCs) calculated in the engineering 

analysis for each efficiency level, as described in chapter 5 of the direct final rule TSD. DOE 

used the AHAM data submittal to determine the MPCs at most efficiency levels for top-loading 

and front-loading standard-size product classes. To supplement the AHAM submittal and 

calculate max-tech MPCs for these product classes, DOE also conducted product tear downs to 

generate MPCs using a manufacturing cost model. DOE also created separate cost curves for 

top-loading and front-loading compact product classes using a combination of tear-downs to 

develop baseline MPCs and the incremental costs for the standard product classes. The cost 

model also provided a breakdown of MPCs into material, labor, overhead, and depreciation that 

DOE applied to the AHAM-provided MPCs at each efficiency level. The top-loading standard 

clothes washer breakdown was also applied to the top-loading compact MPCs and the front-
12-17

loading standard clothes washer breakdown was used for the front-loading compact product 

class.

DOE used the AHAM data submittal to determine the MPCs at most efficiency levels. To 

supplement the AHAM submittal and calculate max-tech MPCs, DOE also conducted product 

teardowns to generate cost-efficiency curves for the top-loading standard and front-loading 

standard product classes. These cost-efficiency relationships were compared to AHAM data and 

manufacturer feedback for validation. The cost model provided a breakdown of MPCs into 

material, labor, overhead, and depreciation that DOE applied to the AHAM-provided MPCs at 

each efficiency level.

Manufacturing a higher-efficiency product is typically more costly than manufacturing a 

baseline product due to the use of more complex components and higher-cost raw materials. The 

changes in the MPCs of the analyzed products can affect revenues, gross margins, and cash flow 

of the industry, making these data a key GRIM input for DOE’s analysis.

The GRIM also included DOE’s estimate of the proportion of costs devoted to labor, 

materials, overhead, and depreciation that make up the full cost of production. For the MPC 

breakdown in the MIA, DOE used a depreciation value that is consistent with historical 

information in SEC 10-Ks. The remainder of total overhead was allocated to factory overhead. 

To calculate the incremental MPCs for products above the baseline, DOE added the incremental 

material, labor, and overhead costs from the engineering cost-efficiency curves to the baseline 

MPCs.

The MSP is comprised of production costs (the direct manufacturing costs or MPCs), 

non-production costs (indirect costs like SG&A), and profit. DOE calculated the MSPs for 

residential clothes washers by multiplying the MPCs by the appropriate manufacturer markup for 

that product. Table 12.4.8 through Table 12.4.11 show the production cost estimates used in the 

GRIM for the representative product classes for residential clothes washers.

Table 12.4.8 MPC Breakdown for Standard-Size Top-Loading Clothes Washers

TSL

(Efficiency Level) IMEF Labor$

Material

$

Overhead

$

Depreciation

$

MPC

$

Mfr.

Markup

MSP

$

Baseline 0.84 46.53 154.00 33.53 13.60 247.65 1.22 302.13

TSL 1 (EL 2) 1.29 47.93 160.37 33.73 14.06 256.09 1.22 312.43

TSL 2 (EL 5) 1.37 49.69 164.20 33.61 14.38 261.88 1.22 319.50

TSL 3 (EL 6) 1.57 52.14 172.13 33.68 14.98 272.93 1.26 343.90

TSL 4 (EL 7) 1.83 50.19 206.23 34.95 16.93 308.30 1.30 400.79

TSL 5 (EL 8) 2.04 34.19 234.62 31.20 17.43 317.44 1.30 412.67
12-18

Table 12.4.9 MPC Breakdown for Standard-Size Front-Loading Clothes Washers

TSL

(Efficiency Level) IMEF Labor$

Material

$

Overhead

$

Depreciation

$

MPC

$

Mfr.

Markup

MSP

$

Baseline 1.37 58.13 390.62 40.94 28.45 518.13 1.22 632.12

TSL 1 (EL 2) 1.46 58.13 391.80 40.87 28.51 519.31 1.22 633.55

TSL 2 (EL 4) 1.66 59.43 395.26 40.86 28.79 524.33 1.26 660.65

TSL 3 (EL 5) 1.84 60.54 404.34 41.11 29.39 535.38 1.30 695.99

TSL 4 (EL 7) 2.20 64.49 438.50 37.61 31.40 572.01 1.30 743.61

TSL 5 (EL 8) 2.46 66.95 449.70 42.51 32.48 591.64 1.30 769.13

Table 12.4.10 MPC Breakdown for Compact-Size Top-Loading Clothes Washers

TSL

(Efficiency Level) IMEF Labor$

Material

$

Overhead

$

Depreciation

$

MPC

$

Mfr.

Markup

MSP

$

Baseline 0.59 47.09 155.88 33.94 13.76 250.68 1.22 305.83

TSL 1 (EL 1) 0.86 47.97 159.42 34.26 14.04 255.68 1.22 311.93

TSL 2 (EL 1) 0.86 47.97 159.42 34.26 14.04 255.68 1.22 311.93

TSL 3 (EL 2) 1.15 55.34 185.17 38.94 16.23 295.68 1.22 360.73

TSL 4 (EL 2) 1.15 55.34 185.17 38.94 16.23 295.68 1.22 360.73

TSL 5 (EL 2) 1.15 55.34 185.17 38.94 16.23 295.68 1.22 360.73

Table 12.4.11 MPC Breakdown for Compact-Size Front-Loading Clothes Washers

TSL

(Efficiency Level) IMEF Labor$

Material

$

Overhead

$

Depreciation

$

MPC

$

Mfr.

Markup

MSP

$

Baseline 1.03 57.86 388.83 40.75 28.31 515.75 1.22 629.22

TSL 1 (EL 1) 1.13 57.76 392.05 40.46 28.48 518.75 1.22 632.88

TSL 2 (EL 1) 1.13 57.76 392.05 40.46 28.48 518.75 1.22 632.88

TSL 3 (EL 1) 1.13 57.76 392.05 40.46 28.48 518.75 1.22 632.88

TSL 4 (EL 1) 1.13 57.76 392.05 40.46 28.48 518.75 1.22 632.88

TSL 5 (EL 1) 1.13 57.76 392.05 40.46 28.48 518.75 1.22 632.88

12.4.8 Conversion Costs

Amended energy conservation standards typically cause manufacturers to incur one-time 

conversion costs to bring their production facilities and product designs into compliance with 

new regulations. For the MIA, DOE classified these one-time conversion costs into two major 

groups: capital conversion costs and product conversion costs. Capital conversion costs are onetime investments in PPE to adapt or change existing production facilities so that new product 

designs can be fabricated and assembled under the new regulation. Product conversion costs are 

one-time investments in research, development, testing, marketing and other costs to make 

product designs comply with amended energy conservation standards. The following sections 

describe the inputs DOE used in the GRIM in greater detail.

12.4.8.1 Residential Clothes Washer Product and Capital Conversion Costs

Amended energy conservation standards will cause manufacturers to incur conversion 

costs to bring their production facilities and product designs into compliance. For the MIA, DOE 

classified these costs into two major groups: (1) product conversion costs and (2) capital 
12-19

conversion costs. Product conversion costs are investments in research, development, testing, 

marketing, and other non-capitalized costs focused on making product designs comply with the 

amended energy conservation standard. Capital conversion costs are investments in property, 

plant, and equipment to adapt or change existing production facilities so that new product 

designs can be fabricated and assembled.

DOE based its conversion cost estimates that would be required to meet each TSL on the 

AHAM data submittal. At each efficiency level, DOE matched the IMEF efficiency level to the 

corresponding MEF metric and used the aggregated total industry capital and product conversion 

cost from the May 2010 AHAM submittal. DOE multiplied each aggregated capital and product 

conversion total by 1.05 to account for the non-AHAM member shipments. For the new maxtech levels that were revised by DOE after the AHAM data submittal, DOE scaled the 

aggregated total conversion costs at the next lowest efficiency level by the same percentage 

increase in production costs. DOE did not increase the require product and capital conversion 

costs for efficiency levels that did not analyze changes to active mode efficiency. Using the 

AHAM data submittal for both the product and the capital conversion costs insures that the onetime costs required to meet amended energy conservation standards are consistent with the 

incremental costs to reach those efficiencies.

DOE took a number of steps to understand the conversion costs in the AHAM data 

submittal. DOE reviewed the AHAM conversion costs during manufacturer interviews to 

understand the magnitude and cost of the required conversions for individual manufacturers. 

DOE also reviewed public information in the CEC, ENERGY STAR, CEE product databases as 

well as manufacturer websites to understand which products manufacturers would upgrade at 

each efficiency level. DOE also reviewed the AHAM submittal in conjunction with the 

technology options and information learned during product teardowns for multiple product lines.

For the top-loading compact product class, DOE scaled the top-loading standard 

conversion costs for the same efficiency level by the relative number of compact platforms. DOE 

estimated the number of top-loading standard and compact platforms using publicly available 

information from manufacturer websites and product databases as well as insights gained in the 

engineering analysis. DOE did not include conversion costs for the front-loading compact 

product classes because the design options analyzed to improve efficiency would require 

minimal changes to baseline products.

Table 12.4.12 through Table 12.4.15 show DOE’s estimates of the product and capital 

conversion costs necessary for each residential clothes washer product class at each TSL.
12-20

Table 12.4.12 Product and Capital Conversion Costs for Standard-Size Top-Loading 

Clothes Washers by TSL

TSL (Efficiency Level) IMEF Design Options Considered

Product 

Conversion 

Costs

2010$ millions

Capital 

Conversion 

Costs

2010$ millions

Baseline 0.84 0.0 0.0

TSL 1 (EL 2) 1.29

Agitator modification 

Basket shape modification 

Electronic controls 

Higher spin speeds 

Larger capacity 

Load size sensors 

More advanced water inlets 

Spray rinse 

Stainless steel basket 

Variable speed drive 

Water temperature sensors (Thermistors) 

21.2 79.7

TSL 2 (EL 5) 1.37

Higher spin speeds

Larger capacity 

Pressure switch accuracy improvement 

Stronger basket 

29.3 91.3

TSL 3 (EL 6) 1.57

Adaptive fill technology 

Agitator replaced by impeller 

High suspension 

Higher spin speeds 

Larger capacity 

Longer cycle times 

Lower water temperatures 

More mechanical action 

More sensing technology 

More sophisticated electronic control 

Out of balance detection 

Recirculation pumps 

Stainless steel basket 

66.3 117.0

TSL 4 (EL 7) 1.83

Absorption sensors 

Accelerometers 

Better motor 

Better temperature control 

Gray water rinse 

Higher capacity 

Higher chemical concentration 

Highest spin speeds 

Load composition sensors 

Longer cycle times 

More mechanical action 

More robust suspension system 

Most sophisticated load detection 

Tachometer 

Water flow meters 

92.1 185.0
12-21

TSL 5 (EL 8) 2.04 No information provided by 

manufacturers 94.8 190.5

Table 12.4.13 Product and Capital Conversion Costs for Standard-Size Front-Loading 

Clothes Washers by TSL

TSL (Efficiency Level) IMEF Design Options Considered

Product 

Conversion 

Costs

2010$ millions

Capital 

Conversion 

Costs

2010$ millions

Baseline 1.37 0.0 0.0

TSL 1 (EL 2) 1.41 Electronic user interface 0.0 0.0

TSL 2 (EL 4) 1.66

Larger capacity

Recirculation pump

Better control technology

10.9 14.9

TSL 3 (EL 5) 1.84

Sophisticated damping system 

Analog pressure sensors 

Water flow meter 

Higher spin speeds 

Longer cycle time 

Reinforced structure 

Larger capacity 

38.2 182.8

TSL 4 (EL 7) 2.20

Larger capacity 

Recirculation pump 

Better control technology 

109.3 291.2

TSL 5 (EL 8) 2.46

More precise dispensing of chemicals 

Load size sensors 

Fuzzy logic 

113.0 301.2
12-22

Table 12.4.14 Product and Capital Conversion Costs for Compact-Size Top-Loading 

Clothes Washers by TSL

TSL (Efficiency Level) IMEF Design Options Considered

Product 

Conversion 

Costs

2010$ millions

Capital 

Conversion 

Costs

2010$ millions

Baseline 0.59 0.0 0.0

TSL 1 (EL 1) 0.86

Spray Rinse

Larger Capacity

Eliminate Warm Rinse

Reduced Water Temperatures

1.4 1.5

TSL 2 (EL 1) 0.86

Spray Rinse

Larger Capacity

Eliminate Warm Rinse

Reduced Water Temperatures

1.4 1.5

TSL 3 (EL 2) 1.15

Electronic Controls

Improved Fill Level Control

Improved Temperature Control

More Efficient Motor

Stainless Steel Wash basket

Water Recirculation

3.0 11.2

TSL 4 (EL 2) 1.15

Electronic Controls

Improved Fill Level Control

Improved Temperature Control

More Efficient Motor

Stainless Steel Wash basket

Water Recirculation

3.0 11.2

TSL 5 (EL 2) 1.15

Electronic Controls

Improved Fill Level Control

Improved Temperature Control

More Efficient Motor

Stainless Steel Wash basket

Water Recirculation

3.0 11.2
12-23

Table 12.4.15 Product and Capital Conversion Costs for Compact-Size Front-Loading 

Clothes Washers by TSL

TSL (Efficiency Level) IMEF Design Options Considered

Product 

Conversion 

Costs

2010$ millions

Capital 

Conversion 

Costs

2010$ millions

Baseline 1.03 0.0 0.0

TSL 1 (EL 1) 1.13 Improved Fill Level Control

Low Standby Power Control Board 0.0 0.0

TSL 2 (EL 1) 1.13 Improved Fill Level Control

Low Standby Power Control Board 0.0 0.0

TSL 3 (EL 1) 1.13 Improved Fill Level Control

Low Standby Power Control Board 0.0 0.0

TSL 4 (EL 1) 1.13 Improved Fill Level Control

Low Standby Power Control Board 0.0 0.0

TSL 5 (EL 1) 1.13 Improved Fill Level Control

Low Standby Power Control Board 0.0 0.0

12.4.9 Markup Scenarios

DOE used several standards case markup scenarios to represent the uncertainty about the 

impacts of amended energy conservation standards on prices and profitability. In the base case, 

DOE used the same baseline markups calculated in the engineering analysis for all product 

classes. In the standards case, DOE modeled three markup scenarios to represent the uncertainty 

about the potential impacts on prices and profitability following the implementation of amended 

energy conservation standards: (1) a no commoditization markup scenario, (2) a tiered markup 

scenario, and (3) and a tiered markup with margin pressure scenario.. These scenarios lead to 

different markups values, which, when applied to the inputted MPCs, result in varying revenue 

and cash flow impacts.

MSP is equal to MPC times a manufacturer markup. The MSP includes direct 

manufacturing production costs (i.e., labor, material, and overhead estimated in DOE’s MPCs)

and all non-production costs (i.e., SG&A, R&D, and interest), along with profit.

To calculate the baseline manufacturer markup, DOE evaluated publicly available 

financial information for manufacturers of major household appliances whose product offerings 

include residential clothes washers. DOE also requested feedback on the 1.22 baseline

manufacturer markup during manufacturer interviews. In the base case for all three GRIM 

markup scenarios, DOE assumed that the products that meet the January 2011 ENERGY STAR 

criteria earn a moderately higher manufacturer markup than “baseline” products that fall below 

those efficiencies. Additionally, products that meet the CEE Tier 2 and Tier 3 criteria earn an 

incrementally higher markup than those that meet the 2011 ENERGY STAR criteria.

For the MIA, DOE modeled three standards-case markup scenarios to represent the 

uncertainty regarding the potential impacts on prices and profitability for manufacturers
12-24

following the implementation of amended energy conservation standards: (1) a no 

commoditization markup scenario, (2) a tiered markup scenario, and (3) and a tiered markup 

with margin pressure scenario. Modifying these markups from the base case to the standards 

cases yields different sets of impacts on manufacturers’ changing industry revenue and cash 

flow.

12.4.9.1 No Commoditization Scenario

The no commoditization scenario assumes that the base-case markup structure (with 

baseline, ENERGY STAR, and CEE Tier 2 and Tier 3 markups) is maintained in the standards 

case. This scenario represents the upper bound of industry profitability because manufacturers 

are able to fully pass through additional costs from amended standards to their customers. In 

addition to fully passing through higher production costs, manufacturers continue to earn 

premium markups after standards for products that are no longer differentiated by the ENERGY 

STAR and CEE programs.

12.4.9.2 Tiered Markup Scenario

The tiered markup scenario also starts with the three different product markups in the 

base case (baseline, ENERGY STAR, and CEE Tier 2 and Tier 3 markups). In the standards 

case, the tiered markup scenario considers the situation in which the breadth of a manufacturer’s 

portfolio of products shrinks and amended standards result in higher-tier products moving to 

lower tiers. As a result, higher efficiency products that previously commanded the ENERGY 

STAR and CEE Tier 2 and Tier 3 markups are assigned the ENERGY STAR and baseline 

markups, respectively. This scenario models a reduction in markups that manufacturers may 

experience as standards increase and reflects one of the industry’s key concerns about product 

commoditization at higher efficiency levels as efficiency differentiators are eliminated

Table 12.4.16 through Table 12.4.19 list the products DOE analyzed with the corresponding 

markups at each TSL for residential clothes washers.
12-25

Table 12.4.16 Tiered Markups for Standard-Size Top-Loading Clothes Washers 

EL

(IMEF)

Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.25)

1.220

EL 1

(1.34)

1.220

EL 2

(1.53)

1.220 1.220

EL 3

(1.56)

1.220 1.220 1.220

EL 4

(1.56)

1.220 1.220 1.220

EL 5

(1.58)

1.220 1.220 1.220

EL 6

(1.70)

1.260 1.260 1.260 1.220

EL 7

(1.86) 1.300 1.300 1.300 1.260 1.220

EL 8

(1.98) 1.300 1.300 1.300 1.260 1.260 1.220

Table 12.4.17 Tiered Markups for Standard-Size Front-Loading Clothes Washers 

EL

(IMEF)

Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.55)

1.220

EL 1

(1.59)

1.220

EL 2

(1.63)

1.220 1.220

EL 3

(1.70)

1.220 1.220

EL 4

(1.87)

1.260 1.260 1.220

EL 5

(2.03)

1.300 1.300 1.260 1.220

EL 6

(2.20)

1.300 1.300 1.260 1.260

EL 7

(2.37) 1.300 1.300 1.260 1.260 1.220

EL 8

(2.61) 1.300 1.300 1.260 1.260 1.260 1.220
12-26

Table 12.4.18 Tiered Markups for Compact-Size Top-Loading Clothes Washers 

EL

(IMEF) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.55)

1.220 1.220 1.220

EL 1

(1.59)

1.220 1.220 1.220 1.220

EL 2

(1.63)

1.220 1.220 1.220 1.220 1.220 1.220

Table 12.4.19 Tiered Markups for Compact-Size Front-Loading Clothes Washers 

EL

(IMEF) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.55)

1.220 1.220 1.220

EL 1

(1.59)

1.220 1.220 1.220 1.220 1.220 1.220

12.4.9.3 Tiered Markups with Margin Pressure Markup Scenario

DOE also modeled a lower bound profitability scenario. In the tiered markup with margin 

pressure scenario, the markups of products that exceed the minimum energy conservation 

standards similarly move to lower efficiency tiers as standards eliminate current efficiency 

differentiators. In this scenario, the manufacturer markups at the new minimum standard are also 

lowered. For both top-loading and front-loading clothes washers, manufacturers are able to 

maintain only the operating profit of the baseline product in absolute dollars. For products at the 

new minimum energy conservation standards, the higher production costs and the investments 

required to comply with the amended energy conservation standard do not yield additional 

operating profit. This scenario models concerns that higher production costs for minimally 

compliant products could greatly hurt manufacturer profitability because a large segment of the 

market is greatly impacted by increases in first costs and there would be tremendous pressure to 

keep entry level products close to today’s prices.
12-27

Table 12.4.20 Tiered Markups with Margin Pressure Markup for Standard-Size TopLoading Clothes Washers 

EL

(IMEF)

Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.25)

1.220

EL 1

(1.34)

1.220

EL 2

(1.53)

1.220 1.218

EL 3

(1.56)

1.220 2.220

EL 4

(1.56)

1.220 2.220

EL 5

(1.58)

1.220 2.220 1.217

EL 6

(1.70)

1.300 1.300 1.300 1.214

EL 7

(1.86) 1.380 1.380 1.380 1.300 1.207

EL 8

(1.98) 1.380 1.380 1.380 1.300 1.300 1.206

Table 12.4.21 Tiered Markups with Margin Pressure Markup for Standard-Size FrontLoading Clothes Washers

EL

(IMEF)

Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.55)

1.220

EL 1

(1.59)

1.220

EL 2

(1.63)

1.220 1.220

EL 3

(1.70)

1.220 1.220

EL 4

(1.87)

1.300 1.300 1.219

EL 5

(2.03)

1.380 1.380 1.300 1.218

EL 6

(2.20)

1.380 1.380 1.300 1.300

EL 7

(2.37) 1.380 1.380 1.300 1.300 1.214

EL 8

(2.61) 1.380 1.380 1.300 1.300 1.300 1.212
12-28

Table 12.4.22 Tiered Markups with Margin Pressure Markup for Compact-Size TopLoading Clothes Washers 

EL

(IMEF) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.55)

1.220 1.220 1.220

EL 1

(1.59)

1.220 1.220 1.220 1.220

EL 2

(1.63)

1.220 1.220 1.220 1.220 1.220 1.220

Table 12.4.23 Tiered Markups with Margin Pressure Markup for Compact-Size FrontLoading Clothes Washers

EL

(IMEF) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Baseline 

(1.55)

1.220 1.220 1.220

EL 1

(1.59)

1.220 1.220 1.220 1.220 1.220 1.220

12.5 INDUSTRY FINANCIAL IMPACTS

Using the inputs and scenarios described in the previous sections, the GRIM estimated 

indicators of financial impacts on the residential clothes washer industry. The main results of the 

MIA are also reported in this section. The MIA consists of two key financial metrics: INPV and 

annual cash flows.

12.5.1 Introduction

The INPV measures the industry value and is used in the MIA to compare the economic 

impacts of different TSLs in the standards case. The INPV is different from DOE’s NPV, which 

is applied to the U.S. economy. The INPV is the sum of all net cash flows discounted at the 

industry’s cost of capital, or discount rate. The residential clothes washer GRIM estimates cash 

flows from 2011 to 2044. This timeframe models both the short-term impacts on the industry 

from the announcement of the standard until the compliance date and a long-term assessment 

over the 30-year analysis period used in the NIA (2015–2044).

In the MIA, DOE compares the INPV of the base case (no amended energy conservation 

standards) to that of each TSL in the standards case. The difference between the base case and a 

standards case INPV is an estimate of the economic impacts that implementing that particular 

TSL would have on the industry. For the residential clothes washer industry, DOE examined the 

three markup scenarios described above: the flat markup, the preservation of operating profit, 

and the tiered markup. While INPV is useful for evaluating the long-term effects of amended 
12-29

energy conservation standards, short-term changes in cash flow are also important indicators of 

the industry’s financial situation. For example, a large investment over one or two years could 

strain the industry’s access to capital. Consequently, the sharp drop in financial performance 

could cause investors to flee, even though recovery may be possible. Thus, a short-term 

disturbance can have long-term effects that the INPV cannot capture. To get an idea of the 

behavior of annual net cash flows, Figure 12.5.1 through Figure 12.5.3 below present the annual 

net or free cash flows from 2010 through 2025 for the base case and different TSLs in the 

standards case.

Annual cash flows are discounted to the base year, 2011. Between 2011 and the 2015

compliance date of the amended energy conservation standard, cash flows are driven by the level 

of conversion costs and the proportion of these investments spent every year. After the standard 

announcement date (i.e., the publication date of the final rule), industry cash flows begin to 

decline as companies use their financial resources to prepare for the amended energy 

conservation standard. The more stringent the amended energy conservation standard, the greater 

the impact on industry cash flows in the years leading up to the compliance date, as product 

conversion costs lower cash inflows from operations and capital conversion costs increase cash 

outflows for capital expenditures.

Free cash flow in the year the amended energy conservation standards take effect is 

driven by two competing factors. In addition to capital and product conversion costs, amended 

energy conservation standards could create stranded assets, i.e., tooling and equipment that 

would have enjoyed longer use if the energy conservation standard had not made them obsolete. 

In this year, manufacturers write down the remaining book value of existing tooling and 

equipment whose value is affected by the amended energy conservation standard. This one time 

write down acts as a tax shield that alleviates decreases in cash flow from operations in the year 

of the write-down. In this year, there is also an increase in working capital that reduces cash flow 

from operations. A large increase in working capital is needed due to more costly production 

components and materials, higher inventory carrying to sell more expensive products, and higher 

accounts receivable for more expensive products. Depending on these two competing factors, 

cash flow can either be positively or negatively affected in the year the standard takes effect.

In the years following the compliance date of the standard, the impact on cash flow 

depends on the operating revenue. More stringent TSLs typically have a positive impact on cash 

flows relative to the base case under the flat markup scenario because manufacturers are able to 

earner higher operating profit at each TSL in the standards case, which increases cash flow from 

operations. There is very little impact on cash flow from operations under the preservation of 

operating profit scenario because this scenario is calibrated to have the same operating income in 

the standards case at each TSL as the base case as in the year after the standard takes effect. In 

this scenario, the industry value is impacted because production costs increase, but operating 

profit remains approximately equal to the base case which decreases profit margins as a 

percentage of revenue.
12-30

12.5.2 Residential Clothes Washer Industry Financial Impacts

Table 12.5.1 through Table 12.5.3 provide the INPV estimates for the residential clothes 

washers. Figure 12.5.1 through Figure 12.5.3 present the annual net cash flows for residential 

clothes washers for each of the different markup scenarios.

Table 12.5.1 Manufacturer Impact Analysis for Residential Clothes Washers – No 

Commoditization Markup Scenario

Units Base Case Trial Standard Level

1 2 3 4 5

INPV (2010$ 

millions) 2,585.7 2,529.4 2,571.3 2,682.0 2,790.7 2,841.2 

Change in 

INPV

(2010$ 

millions) - (56.3) (14.3) 96.4 205.0 255.5 

(%) - -2.2% -0.6% 3.7% 7.9% 9.9%

*For tables in section Error! Reference source not found., values in parenthesis indicate negative numbers 

Table 12.5.2 Manufacturer Impact Analysis for Residential Clothes Washers – Tiered 

Markup Scenario

Units Base Case Trial Standard Level

1 2 3 4 5

INPV (2010$ 

millions) 2,585.7 2,529.4 2,110.0 1,762.8 1,453.0 1,417.5 

Change in 

INPV

(2010$ 

millions) - (56.3) (475.7) (822.9) (1,132.7) (1,168.1)

(%) - -2.2% -18.4% -31.8% -43.8% -45.2%

Table 12.5.3 Manufacturer Impact Analysis for Residential Clothes Washers – Tiered 

Markup Scenario with Margin Impacts

Units Base Case Trial Standard Level

1 2 3 4 5

INPV (2010$ 

millions) 2,585.7 2,521.7 2,095.3 1,726.9 1,329.3 1,250.4 

Change in 

INPV

(2010$ 

millions) - (64.0) (490.3) (858.8) (1,256.4) (1,335.3)

(%) - -2.5% -19.0% -33.2% -48.6% -51.6%
12-31

Figure 12.5.1 Annual Industry Net Cash Flows for Residential Clothes Washers (No 

Commoditization Markup Scenario)

$(100.0)

$(50.0)

$-

$50.0 

$100.0 

$150.0 

$200.0 

$250.0 

$300.0 

$350.0 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2010$ Millions

Year

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Energy Conservation Standards 

Effective Date

2015
12-32

Figure 12.5.2 Annual Industry Net Cash Flows for Residential Clothes Washers (Tiered 

Markup Scenario)

$(100.0)

$(50.0)

$-

$50.0 

$100.0 

$150.0 

$200.0 

$250.0 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2010$ Millions

Year

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Energy Conservation Standards 

Effective Date

2015
12-33

Figure 12.5.3 Annual Industry Net Cash Flows for Residential Clothes Washers (Tiered 

Markup Scenario with Margin Impacts)

12.6 IMPACTS ON SMALL RESIDENTIAL CLOTHES WASHER 

MANUFACTURERS

To estimate the number of small businesses which could be impacted by the amended 

energy conservation standards, DOE conducted a market survey using all available public 

information to identify potential small manufacturers. DOE’s research included the AHAM 

membership directory, product databases (CEE, CEC, and ENERGY STAR databases) and 

individual company websites to find potential small business manufacturers. DOE also asked 

stakeholders and industry representatives if they were aware of any other small business 

manufacturers during manufacturer interviews and at previous DOE public meetings. DOE 

reviewed all publicly available data and contacted various companies, as necessary, to determine 

whether they met the SBA’s definition of a small business manufacturer of covered residential 

clothes dryers or room air conditioners. DOE screened out companies that did not offer products 

covered by this rulemaking, did not meet the definition of a “small business,” or are foreign 

owned and operated.

The majority of residential clothes washers are currently manufactured in the United 

States by one corporation that accounts for approximately 64 percent of the total market. 

$(100.0)

$(50.0)

$-

$50.0 

$100.0 

$150.0 

$200.0 

$250.0 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2010$ Millions

Year

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Energy Conservation Standards 

Effective Date

2015
12-34

Together, this and three other major manufacturers that are not small business manufacturers 

comprise 92 percent of the residential clothes washer market. The small portion of the remaining 

residential clothes washer market (approximately 700,000 shipments) is supplied by a 

combination of 12 international and domestic companies, all of which have small market shares.

DOE identified only one manufacturer that is considered a small business under NAICS 

Code 335224. The one small business manufacturer has one product platform. It makes a 

standard-size top-loading residential clothes washer that meets a 1.85 MEF and a 6.75 WF. The 

product meets the 2015 energy conservation standards, but falls short of the 2018 standard. The 

unit does not offer warm rinse and has electromechanical controls, making it likely that three 

wash temperatures (hot, warm, cold) are available on all settings including Normal for test 

procedure purposes. Thus, it is likely the unit will have to undergo alterations to its basic design 

to meet the 2018 efficiency requirements.

This company appears to manufacturer its residential clothes washer with less automation and 

more labor than some of the larger competitors. In order to change the design of their current 

product to meet the 2018 efficiency standards, one available design pathway would be increasing 

the volume of the wash basket—assuming there is enough clearance within the cabinet. 

Increasing the drum’s radius would only involve cutting slightly larger octagon-shaped pieces of 

metal but would not be a capital intensive solution. With this pathway, the assembly process and 

fabrication time would essentially remain the same. This solution would also prevent the small 

business manufacturer from bearing the cost of retrofitting their manufacturing process and could 

result in lower per unit conversion costs relative to larger manufacturers. Additionally, since the 

small business manufacturer already meets the 2015 energy conservation standards, it would 

have nine years from the announcement of today’s direct final rule until it would have to make 

any changes to its current product in response to standards. Thus, DOE does not believe that this 

company would be disproportionately impacted by the standards established for residential 

clothes washers in today’s final rule. DOE also notes that the small business manufacturer 

accounts for less than one percent of the total residential clothes washer market share.

12.7 OTHER IMPACTS

12.7.1 Employment

For residential clothes washers, DOE used the GRIM to estimate the domestic labor 

expenditures and number of domestic production workers in the base case and at each TSL from 

2011 to 2044. DOE used statistical data from the most recent U.S. Census Bureau’s 2009 Annual 

Survey of Manufacturers, the results of the engineering analysis, and interviews with 

manufacturers to determine the inputs necessary to calculate industry-wide labor expenditures 

and domestic employment levels. Labor expenditures for the manufacture of a product are a 

function of the labor intensity of the product, the sales volume, and an assumption that wages in 

real terms remain constant.
12-35

In the GRIM, DOE used the labor content of each product and the manufacturing 

production costs from the engineering analysis to estimate the annual labor expenditures in the 

residential clothes washer industry. DOE used Census data and interviews with manufacturers to 

estimate the portion of the total labor expenditures that is attributable to U.S. (i.e., domestic) 

labor.

The production worker estimates in this section only cover workers up to the linesupervisor level who are directly involved in fabricating and assembling a product within an

Original Equipment Manufacturer (OEM) facility. Workers performing services that are closely 

associated with production operations, such as material handing with a forklift, are also included

as production labor. DOE’s estimates only account for production workers who manufacture the 

specific products covered by this rulemaking.

The employment impacts shown in Table 12.7.1 represent the potential production 

employment that could result following amended energy conservation standards. The upper end 

of the results in this table estimates the maximum change in the number of production workers 

after amended energy conservation standards must be met. The upper end of the results assumes 

manufacturers would continue to produce the same scope of covered products in the same 

production facilities. The upper end of the range also assumes that domestic production does not 

shift to lower-labor-cost countries. Because there is a real risk of manufacturers evaluating 

sourcing decisions in response to amended energy conservation standards, the lower end of the 

range of employment results in Table 12.7.1 includes the estimated total number of U.S. 

production workers in the industry who could lose their jobs if all existing production were 

moved outside of the United States. While the results present a range of employment impacts 

following the compliance date of amended energy conservation standards, the discussion below 

also includes a qualitative discussion of the likelihood of negative employment impacts at the 

various TSLs. Finally, the employment impacts shown are independent of the employment 

impacts from the broader U.S. economy, which are documented in chapter 13, Employment 

Impact Analysis, of the direct final rule TSD.

The GRIM forecasts the residential clothes washer domestic labor expenditure for 

production labor in 2015 will be approximately $327.81 million. Using the $19.61 wage rate and 

1,860 production hours per year per employee found in the 2009 ASM, the GRIM estimates 

there will be approximately 8,990 U.S. production employees involved in manufacturing 

residential clothes washers covered by this rulemaking. In addition, DOE estimates that 738 nonproduction employees in the United States will support residential clothes washer production.e

 

e

As defined in the 2009 ASM, production workers number include “workers (up through the line-supervisor level) 

engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, warehousing, 

shipping (but not delivering), maintenance, repair, janitorial and guard services, product development, auxiliary 

production for plant's own use (e.g., power plant), recordkeeping, and other services closely associated with these 

production operations at the establishment covered by the report. Employees above the working-supervisor level are 

excluded from this item.” Non-production workers are defined as “employees of the manufacturing establishment 

including those engaged in factory supervision above the line-supervisor level. It includes sales (including driver-
12-36

The employment spreadsheet of the residential clothes washer GRIM shows the annual domestic 

employment impacts in further detail. Approximately 70 percent of residential clothes washers

sold in the United States are manufactured domestically.

Table 12.7.1 illustrates the range of potential impacts of amended energy conservation 

standards on domestic production employment levels at each TSL for the residential clothes 

washer market.

Table 12.7.1 Potential Changes in the Total Number of Domestic Residential Clothes 

Washer Production Workers in 2015

Trial Standard Level 

Baseline 1 2 3 4 5

Total Number of 

Domestic Production 

Workers in 2015

(without changes in 

production locations)

8,990 9,058 9,164 9,080 9,376 8,604 

Potential Changes in 

Domestic Production 

Workers in 2015*

-

68 -

(8,890)

174 -

(8,890)

90 -

(8,890)

386 -

(8,890)

(386) -

(8,890)

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.

Figure 12.7.1 below shows total annual domestic employment levels for each TSL 

calculated by the GRIM.

 

salespersons), sales delivery (highway truck drivers and their helpers), advertising, credit, collection, installation and 

servicing of own products, clerical and routine office functions, executive, purchasing, financing, legal, personnel 

(including cafeteria, medical, etc.), professional, and technical employees. Also included are employees on the 

payroll of the manufacturing establishment engaged in the construction of major additions or alterations utilized as a 

separate work force.” 
12-37

Figure 12.7.1 Total Residential Clothes Washer Industry Domestic Employment by Year

All examined TSLs show relatively minor impacts on domestic employment levels 

relative to total industry employment. At all TSLs, most of the design options analyzed by DOE 

do not greatly alter the labor content of the final product. For example, more complex wash 

cycles or larger basket sizes involve one-time changes to the final product but do not 

significantly change the number of steps required for the final assembly of the clothes washer 

(which would add labor). Because many manufacturers have recently introduced high efficiency 

products in the United States that meet or exceed the standards in today’s final rule, it is unlikely 

today’s direct final rule would greatly impact the sourcing decisions of these manufacturers. 

However, at higher TSLs, some of the design options analyzed greatly impact the ability of 

manufacturers to make product changes within existing platforms. The very large upfront capital 

costs at these levels (especially for introducing new front-loading clothes washer platforms) 

could influence the decision of manufacturers to relocate some or all of the domestic production 

of these clothes washers to lower labor cost countries.

12.7.2 Production Capacity

Most shipments of top-loading residential clothes washers fall below the 2015 and 2018 

amended energy conservation standards. However, in response to the EISA 2007 water factor 

requirements, multiple manufacturers have modified baseline products to comply with these 

more stringent regulations. These changes were incremental modifications to lower efficiency 

platforms. The 2015 efficiency requirements would also involve modifications to lower-end 

platforms for top-loading clothes washers for all manufacturers, but would similarly not require 

completely new platforms at a significantly higher upfront cost. In addition, multiple 

manufacturers have recently introduced new top-loading clothes washers that meet substantially 

higher efficiencies than lower-end products at the baseline efficiency today. The introduction of 

these platforms greatly mitigates the required capital conversion costs for the industry to meet 

the 2018 top-loading energy conservation standards. DOE believes that the mitigated capital 

0 

2,000 

4,000 

6,000 

8,000 

10,000 

12,000 Total Domestic Employment (# of workers)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Energy Conservation Standards Compliance Date (Tier 1)
12-38

conversion costs for manufacturers that have already introduced high efficiency top-loading 

clothes washers in addition to the additional 3 years for all remaining manufacturers to meet the 

more aggressive standards for top-loading clothes washers in 2018 will allow the industry to 

meet demand and continue to offer a full range of products after the compliance date. 

More than 70 percent of front-loading clothes washer shipments currently meet the front-loading 

energy conservation standards in today’s direct final rule. In addition, every manufacturer that 

ships front-loading clothes washers offers products at the amended energy conservation standard. 

Since manufacturers will not have to make extensive platform changes but will need to increase 

the production of existing product by the 2015 compliance date, the experience of multiple frontloading clothes washer manufacturers that already produce standards-compliant front-loading 

clothes washers will allow the industry to meet the amended energy conservation standards 

proposed in the direct final rule.

12.7.3 Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. For the cumulative regulatory 

burden analysis, DOE looks at other significant product-specific regulations that could affect

residential clothes washer manufacturers that will take effect three years before or after the 

compliance date of amended energy conservation standards for these products. In addition to the 

amended energy conservation regulations on residential clothes washers, several other Federal 

regulations apply to these products and other equipment produced by the same manufacturers.

While the cumulative regulatory burden focuses on the impacts on manufacturers of other 

Federal requirements, DOE also has described a number of other regulations in section 12.7.3.3

and section 12.7.3.4 because it recognizes that these regulations also impact the products covered 

by this rulemaking.

Companies that produce a wide range of regulated products may be faced with more 

capital and product development expenditures than competitors with a narrower scope of 

products. Regulatory burdens can prompt companies to exit the market or reduce their product 

offerings, potentially reducing competition. Smaller companies in particular can be affected by 

regulatory costs since these companies have lower sales volumes over which they can amortize 

the costs of meeting new regulations. A proposed standard is not economically justified if it 

contributes to an unacceptable level of cumulative regulatory burden.
12-39

12.7.3.1 DOE Regulations for Other Products Produced by Residential 

Clothes Washer Manufacturers

In addition to the amended energy conservation standards on residential clothes washers, 

several other Federal regulations and pending regulations apply to other products produced by 

the same manufacturers. DOE recognizes that each regulation can significantly affect a

manufacturer’s financial operations. Multiple regulations affecting the same manufacturer can 

quickly strain manufacturers’ profits and possibly cause an exit from the market. Table 12.7.2

lists the other DOE energy conservation standards that could also affect manufacturers of 

residential clothes washers in the 3 years leading up to and after the compliance date of amended 

energy conservation standards for these products.
12-40

Table 12.7.2 Other DOE and Federal Actions Affecting the Residential Clothes Washer 

Industry

Regulation

Approximate 

Compliance 

Date*

Number of Impacted 

Companies from the 

Market and Technology 

Assessment (MTA) (See 

Chapter 3)

Estimated Total 

Industry 

Conversion Costs

Packaged Terminal Air 

Conditioners and 

Packaged Terminal Heat 

Pumps 2012 4

$17.3 million 

(2007$)f

Cooking Products 2012 12

$22.6 million 

(2006$)g

General Service 

Fluorescent Lamps and 

Incandescent Reflector 

Lamps 2012 1

$363.1 million 

(2008$)h

Dehumidifiers 2012 4 N/A†

Commercial Clothes 

Washers 2013 7

$20.4 million 

(2008$)i

Battery Chargers and 

External Power Supplies 2013* 1 N/A††

ER, BR, and Small 

Diameter IRLs 2014* 1 N/A††

Residential Refrigerators 

and Freezers 2014* 13 N/A††

Room Air Conditioners 2014* 6 N/A††

Residential Clothes 

Dryers 2014* 16 N/A††

Fluorescent Lamp 

Ballasts 2014* 1 N/A††

Microwave Ovens 2014* 9 N/A††

 

fEstimated industry conversion expenses were published in the TSD for the October 2008 packaged terminal air 

conditioners and packaged terminal heat pumps final rule. 73 FR 58772. The TSD for the 2008 packaged terminal 

air conditioners and packaged terminal heat pumps final rule can be found at 

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/ptacs_pthps_final_tsd.html.

gEstimated industry conversion expenses were published in the TSD for the April 2009 residential cooking products 

final rule. 74 FR 16040. The TSD for the 2009 residential cooking products final rule can be found at 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cooking_products_final_rule_tsd.html.

hEstimated industry conversion expenses were published in the TSD for the July 2009 general service fluorescent 

lamps and incandescent reflector lamps final rule. 74 FR 34080. The TSD for the 2009 lamps final rule can be found 

at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/incandescent_lamps_standards_final_rule_ts

d.html.

iEstimated industry conversion expenses were published in the TSD for the January 2010 commercial clothes 

washers final rule. 75 FR 1122. The TSD for the 2010 commercial clothes washers final rule can be found at

http://www1.eere.energy.gov/buildings/appliance_standards/commercial/clothes_washers_ecs_final_rule_tsd.html
12-41

Regulation

Approximate 

Compliance 

Date*

Number of Impacted 

Companies from the 

Market and Technology 

Assessment (MTA) (See 

Chapter 3)

Estimated Total 

Industry 

Conversion Costs

Metal Halide Lamp 

Fixtures 2015* 1 N/A††

Residential Clothes 

Washers 2015* 16 N/A††

Residential Water Heaters 2015 4

$95.9 million 

(2009$)j

Commercial Electric 

Motors 2015* 1 N/A††

Commercial Distribution 

Transformers 2015* 2 N/A††

Commercial Refrigeration 

Equipment 2016* 2 N/A††

High–Intensity Discharge 

Lamps 2017* 1 N/A††

Dishwashers 2018* 14 N/A††

*The dates listed are an approximation. The exact dates are pending final DOE action.

† For minimum performance requirements prescribed by the Energy Independence and Security Act of 2007 (EISA 

2007), DOE did not estimate total industry conversion costs because an MIA was not completed as part of a 

rulemaking. Pub. L. 110-140. EISA 2007 made numerous amendments to the Energy Policy and Conservation Act 

(EPCA) of 1975, Pub. L. 94-163, (42 U.S.C. 6291–6309), which established an energy conservation program for 

major household appliances and industrial and commercial equipment.

†† For energy conservation standards for rulemakings awaiting DOE final action, DOE does not have a finalized 

estimated total industry conversion cost. 

Some Federal DOE regulations have a more significant impact on manufacturers of 

residential clothes washers than others because manufacturers hold a significant market share in 

those covered products. Where market share and company financial data is available, DOE 

attempts to quantify the cumulative regulatory burden as measured by the fraction of corporate 

revenues that are derived from the manufacture of products covered by other standards 

rulemakings. Table 12.7.3 below shows the DOE energy conservation standards with compliance 

dates within four years of residential clothes washers where manufacturers are expected to be 

most impacted due to their market positions. For these rulemakings, residential clothes washer 

manufacturers would likely be burdened by a significant portion of the estimated industry 

conversion costs. 

 

j Estimated industry conversion expenses were published in the TSD for the April 2010 heating products final rule. 

75 FR 20112. The TSD for the 2010 heating products final rule can be found at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/heating_products_fr_tsd.html.
12-42

Table 12.7.3 DOE Regulations on Products For Which Residential Clothes Washer 

Manufacturers Hold Significant Market Share

GE Whirlpool Electrolux

Revenue $150,211,000,000 $18,366,000,000 $16,492,000,000

Industry Sales Market 

share

% of 

Revenue

Market 

share

% of 

Revenue

Market 

share

% of 

Revenue

Refrigerators and Freezers $10,310,000,000 21.8% 1.5% 23.8% 13.3% 23.4% 14.7%

Residential Clothes Dryers $2,486,248,000 14.2% 0.24% 71.2% 9.64% 7.1% 1.1%

Room Air Conditioners $1,050,272,000 13% 0.74% 13% 0.85%

Residential Clothes Washers $3,373,042,000 16.0% 0.36% 64% 11.75% 6.0% 1.23%

Dishwashers $2,106,245,000 27.0% 0.38% 49% 5.6% 18.0% 2.3%

Cooking Products $4,491,117,000 44.0% 1.3% 15.4% 4.2%

Dehumidifiers $199,130,000 35% 0.38% 6.0% 0.07%

Microwave Ovens 1,376,667,000 4.0% 0.3%

Totals 3.78% 41.8% 24.3%

LG Haier Samsung

Revenue $51,432,900,000 $42,500,000,000 $142,631,000,000

Industry Sales Market 

share

% of 

Revenue

Market 

share

% of 

Revenue

Market 

share

% of 

Revenue

Refrigerators and Freezers $10,310,000,000 9.4% 2.3%

Residential Clothes Dryers $2,486,248,000

Room Air Conditioners $1,050,272,000 32.0% 0.65% 8.0% 0.2% 5% 0.04%

Residential Clothes Washers $3,373,042,000 6.0% 0.4%

Dishwashers $2,106,245,000

Cooking Products $4,491,117,000 27.4% 2.4%

Dehumidifiers $199,130,000 35.0% 0.14% 3.0% 0.004%

Microwave Ovens 1,376,667,000 35.0% 0.94% 12.0% 0.12%

Totals 4.5% 2.5% 0.16%

Where specific market share data was not available, DOE identified additional products 

manufacturers produced that are covered by additional efficiency standards as shown in Table 

12.7.4.
12-43

Table 12.7.4 Other Covered Products For Which Residential Clothes Washer 

Manufacturer Market Share Data Is Unavailable.

Manufacturer Other Products Manufactured

Alliance Commercial clothes washers, residential clothes dryers

Asko Commercial clothes washers, residential clothes dryers, dishwashers

Bosch-Siemens Cooking products, residential clothes dryers, residential water heaters, dishwashers

Equator Residential refrigerators and freezers, residential clothes dryers, dishwashers

Fagor Cooking products, residential refrigerators and freezers, residential clothes dryers, 

dishwashers

Fisher & Paykel Cooking products, residential clothes dryers, dishwashers

Haier Cooking products, residential clothes dryers, room air conditioners

Indesit Cooking products, residential refrigerators and freezers, residential clothes dryers, 

dishwashers

Miele Cooking products, residential refrigerators and freezers, residential clothes dryers, 

dishwashers

Samsung Cooking products, residential clothes dryers, room air conditioners

Staber Residential clothes dryers

Summit Residential refrigerators and freezers, residential clothes dryers, commercial 

refrigeration equipment, dishwashers

12.7.3.2 Other Federal Regulations

Potential Climate Change and Greenhouse Gas Legislation

Many manufacturers expressed concern about potential climate change legislation. One 

proposed regulation that would exacerbate the manufacturer burden caused by more stringent 

energy conservation standards on refrigeration products is H.R. 2454, the American Clean 

Energy and Security Act of 2009. This legislation would initiate a phase-down of 

hydrofluorocarbons (HFCs) and would make the amended energy conservation standard levels 

considered in this rulemaking more difficult to achieve. Manufacturers were particularly 

concerned that these regulations could impact U.S. heat pump clothes washer designs in the 

future. 

12.7.3.3 UL Conversion Costs

In the clothes dryer rulemaking, DOE accounted for the conversion costs for 

manufacturers to comply with the revisions to UL 2158 as mentioned in the comments from 

interested parties. DOE notes that the UL 2157 and 2158 are not Federal regulations. In contrast 

to the RoHS Directive requirements discussed previously, UL certification is a de facto

requirement for selling products in the United States because many local building codes require

all installed products to meet safety regulations. DOE has included the UL certification costs for 

both UL 2157 and UL 2158 as a sensitivity scenario in the GRIM, but does not include the UL 

conversion costs in the main MIA results.
12-44

For this analysis, DOE scaled the UL conversion costs from the clothes dryer rulemaking 

by the relative number of shipments for residential clothes washers to arrive at a UL conversion 

cost for this rulemaking.

12.7.3.4 Other Regulations That Could Impact Residential Clothes Washer 

Manufacturers

While the cumulative regulatory burden focuses on the impacts on manufacturers of other 

Federal requirements, in this section DOE has described a number of other regulations below 

that could also impact the residential clothes washers covered by this rulemaking

State Energy Conservation Standards

Manufacturers indicated that California has several programs that are either already in 

place or are currently in development that affect manufacturers of residential clothes washers.

Various building, electrical, mechanical, and plumbing codes in California affect clothes 

washers, and products are also subject to California’s laws on the Restriction on the use of 

certain Hazardous Substances (RoHS). California’s RoHS law took effect January 1, 2007 and 

was modeled after the EU’s directive (described below), which bans certain hazardous 

substances from electrical and electronic equipment.

International Energy Conservation Standards

Residential clothes washer manufacturers that sell products outside of the United States 

are subject to several international energy conservation standards. In the EU, products are also 

subject to RoHS. This regulation bans the sale of new equipment in the EU that contains more 

than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl 

(PBB) and PBDE flame retardants. Waste Electrical and Electronic Equipment (WEEE) and the 

Registration, Evaluation, Authorization, and restriction of Chemicals (REACH) are additional 

regulations that create compliance costs for manufacturers that compete in Europe. REACH 

deals with chemicals and their safe use and has provisions that will be phased-in over eleven 

years, beginning June 1, 2007. The EU also sets limits for the amount of energy consumed by 

equipment when it is in standby mode and off mode. Additionally, HFCs are banned in 

refrigerants in several countries, such as Austria, Denmark, and Switzerland. Canada and several 

other foreign countries have regulations or have initiated regulations affecting clothes washer 

manufacturers.

12.8 CONCLUSION

The following sections summarize the different impacts for the scenarios DOE believes 

are most likely to capture the range of impacts on residential clothes washer manufacturers at 

each TSL in the standards case. While these scenarios bound the range of the most plausible 
12-45

impacts on manufacturers, some circumstances could cause manufacturers to experience impacts 

outside this range.

12.8.1 Residential Clothes Washers

At TSL 1, DOE estimates impacts on INPV to range -$56.3 million to -$64.0 million, or a 

change in INPV of -2.2 percent to -2.5 percent. At this level, industry free cash flow is estimated 

to decrease by approximately 20.2 percent to $170.0 million, compared to the base-case value of 

$213.1 million in the year leading up to the amended energy conservation standards. 

Because the top-loading and front-loading standard clothes washers comprise over 98 

percent of the total residential clothes washer shipments, the vast majority of the INPV impacts 

come from the standard-size product classes. At TSL 1, most impacts on both INPV and free 

cash flow stem from the modest changes required for top-loading standard clothes washers 

because all of the front-loading standard residential clothes washers on the market today already 

meet standards at this level. For top-loading clothes washers, of which only 13 percent of the 

market currently meets standards proposed at TSL 1, the impacts on INPV and free cash flow 

arise from increases in upfront investment for product development and, to a lesser extent, the 

per-unit component costs required to achieve this efficiency level. TSL 1 would require 

investments in product redesign and improvements to facilities totaling approximately $103.9 

million in an industry with base-case annual revenues of more than $4.4 billion in the year the 

standards go into effect. 

Regarding increases in component costs, the design options used to meet standards at 

TSL 1 include component changes such as electronic controls, agitator modification, and basket 

modifications. For top-loading standard residential clothes washers, these changes contribute 

only $8.44 (3.4 percent) to arrive at a MPC of $256.09. In summation, the cumulative effect on 

INPV and free cash flow is minimal largely because all front-loading standard products and 

some top-loading standard products already meet the efficiencies required at TSL 1, and the 

design changes for the top-loading standard products that do not meet the efficiency required at 

TSL1 would impose minimal costs. Further, as the efficiencies required at TSL 1 are well below 

ENERGY STAR levels, manufacturers are likely to retain the premiums they currently see 

across the full range of product efficiencies.

At TSL 2, DOE estimates impacts on INPV to range -$14.3 million to -$490.3 million, or 

a change in INPV of -0.6 percent to -19.0 percent. At this level, industry free cash flow is 

estimated to decrease by approximately 28.4 percent to $152.6 million, compared to the basecase value of $213.1 million in the year leading up to the amended energy conservation 

standards.

Because the top-loading and front-loading standard clothes washers comprise over 98 

percent of the total residential clothes washer shipments, the vast majority of the INPV impacts 

come from the standard-size product classes. At TSL 2, the impacts on INPV and free cash flow 

result from higher per-unit costs for both top-loading and front-loading standard-sized product 
12-46

classes as well as increases in product and capital conversion costs for both of these product 

classes. The design options used to meet standards at TSL 2 for standard-size products include 

additional component changes to enable higher spin speeds and better control beyond the 

improvements to electronic controls and the agitator and basket associated with TSL 1. The 

resulting MPC for top-loading standard residential clothes washers is approximately $261.88 at 

TSL 2, a $14.23 (5.7 percent) increase over current baseline units and similar to the incremental 

costs at TSL 1. For front-loading standard residential clothes washers, the MPC is approximately 

$524.33, a $6.20 (1.2 percent) increase from the baseline. The product redesign and 

incorporation of these changes into manufacturing lines requires approximately $149.3 million in 

total conversion costs—a $45.4 million increase from TSL 1.

TSL 2 brings all front-loading standard clothes washers up to current ENERGY STAR 

standard levels. The most severe impact to INPV at TSL 2 is the result of margin compression on 

front-loading standard clothes washers as manufacturers forfeit premiums and cut into margins 

as they try to maintain a marginally compliant competitively priced entry level product. While 

only a small fraction of front-loading clothes washers (4 percent of shipments) would be 

impacted in the standards case at TSL2, in the tiered markup scenario with margin compression 

the profitability impacts on front-loading clothes washers has a disproportionately large negative 

impact on INPV because most of the market is ENERGY STAR compliant in the base case. 

At TSL 3, DOE estimates impacts on INPV to range $96.4 million to -$858.8 million, or 

a change in INPV of 3.7 percent to -33.2 percent. At this level, industry free cash flow is 

estimated to decrease by approximately 3.6 percent to $205.5 million, compared to the base-case 

value of $213.1 million in the year leading up to the first tier of amended energy conservation 

standards in 2015.

At TSL3, the largest impacts to free cash flow and INPV stem from the substantial 

upfront investments required to achieve this efficiency level. While the efficiency requirements 

for top-loading standard clothes washers in 2015 require incremental changes to existing 

products, the 2018 efficiency requirements for top-loading standard clothes washers are more 

substantial. Because only 9 percent of current shipments of top-loading standard clothes washers 

meet the 2018 efficiency standards established at TSL 3, manufacturing products to meet the 

2018 standards would require large investments in product redesign and conversion of facilities. 

Substantial investments would also be required for manufacturers to meet the 2015 front-loading 

standard. The total conversion cost required to meet the 2015 and 2018 standards at TSL 3 is 

approximately $418.5 million— a substantial fraction of overall industry value and $269.2

million higher than at TSL 2. 

Less than 25 percent of the conversion costs associated with TSL 3 can be attributed to 

the 2015 compliance for top-loading standard products. This is a considerably smaller factor than 

at TSL 1 and TSL 2 at which 97 percent 81 percent of conversion costs can be attributed to 

standard top-loading compliance, respectively. The design options used to meet the 2015 frontloading and 2018 top-loading standards at TSL 3 include larger unit capacities, damping 

systems, and reinforced structural elements. Substantial changes to existing production facilities
12-47

would be required to manufacture products to incorporate the 2015 front-loading and 2018 toploading design options. Several manufacturers have already introduced products that meet the 

2015 front-loading standard and 2018 top-loading standard efficiency levels, which mitigates the 

required changes to production facilities for these manufacturers. The two-tiered compliance date

of TSL 3 also mitigates the effect of the large conversion costs required to meet the 2018 toploading standards, subjecting the impact on cash flows to greater discounting while also allowing 

manufactures to delay or spread out their conversion costs.

At TSL 3, the MPC for top-loading standard residential clothes washers is $256.09 to 

meet the 2015 energy conservation standard and $272.93 to meet the 2018 energy conservation 

standard. For front-loading standard residential clothes washers the MPC is approximately

$535.38 to meet the 2015 energy conservation standard. For the 2015 standard this is an $8.44 

(3.4 percent) increase for top-loading standard clothes washers and a $17.25 (3.3 percent) 

increase for front-loading standard residential clothes washers. For the 2018 energy conservation 

standard for top-loading standard clothes washers, this is a $25.28 (10.2 percent) increase. In the 

scenario in which manufacturers see no commoditization of higher efficiency clothes washers, 

the modest increases to MPC translate to higher margins sufficient to offset the initial capital 

investments and product design costs over the 30 year analysis period. In contrast in the tiered 

mark up scenario, because TSL 3 sets standards for top-loading standard clothes washers at 

current ENERGY STAR levels and standards for front-loading standard clothes washers above 

these levels, manufacturers lose their premium markup for high efficiency standard-size product 

classes leading to a substantial reduction in future revenues and subsequently in INPV.

At TSL 4, DOE estimates impacts on INPV to range $205.0 million to -$1,256.4 million, 

or a change in INPV of 7.9 percent to -48.6 percent. At this level, industry free cash flow is 

estimated to decrease by approximately 130.7 percent to -$65.5 million, compared to the basecase value of $213.1 million in the year leading up to the amended energy conservation 

standards. 

Much like TSL 3, the impacts to INPV at TSL 4 result primarily from the substantial 

upfront investments required to achieve the amended efficiency levels for standard-size products, 

the incremental increases in per-unit costs, and the potential margin impacts. In contrast to TSL 

3, TSL 4 has no tiered compliance dates for increased energy efficiency standards for top loading 

clothes washers. As such, manufacturers are required to cover the conversion costs for all 

products by 2015. Manufacturing products to meet standards for both standard-size product 

classes at TSL 4 may require a complete platform overhaul, resulting in significant investments 

in both product redesign and the conversion of facilities. The total conversion cost required to 

meet standards at TSL 4 is approximately $691.8 million—a $273.3 million increase from TSL 

3. The design options used to meet standards at TSL 4 include changes such as larger capacity, 

accelerometers, and better control technology beyond what is required for TSL 3. The resulting 

MPC for top-loading standard residential clothes washers at TSL 4 is approximately $308.30,

and approximately $572.01 for front-loading standard residential clothes washers. This is a 

$60.65 (24.5 percent) and a $53.88 (10.4 percent) increase from the baseline for top and front-
12-48

loading standard residential clothes washers, respectively. This increase in MPC translates to a 

3.5 percent decrease in 2015 shipments. 

The impact on INPV arising from a decrease in shipments from price elasticity is minor 

in comparison to that stemming from product commoditization and margin impacts as analyzed 

in the tiered markup scenario with margin impacts for standard-sized product classes. As TSL 4 

brings standards for both front-loading and top-loading standard products above current 

ENERGY STAR levels, the fraction of products that are eligible for any additional markup 

above the baseline is further reduced as manufacturers sacrifice margins as they continue to seek 

to maintain a low-price-point basic product offering.

At TSL 5, DOE estimates impacts on INPV to range $255.5 million to -$1,335.3 million, 

or a change in INPV of 9.9 percent to -51.6 percent. At this level, industry free cash flow is 

estimated to decrease by approximately 134.9 percent to -$74.3 million, compared to the basecase value of $213.1 million in the year leading up to the amended energy conservation 

standards.

TSL 5 represents the max-tech efficiency level for both top and front-loading standard 

clothes washers. The effects on INPV result from similar sources as TSL 4, including the 

substantial upfront investments required to achieve the amended efficiency levels, the 

incremental increases in per-unit costs, and the potential margin impacts. These effects, however, 

are compounded by the higher upfront investments for facility improvements and product 

development, the additional increases to the MPC, and the collapse of manufacturer margins as 

analyzed in the tiered markup scenario with margin impacts. At present, the market share of 

commercially available residential clothes washers that conform to this standard is negligible. As 

such, standards will affect nearly all platforms and manufacturers will incur substantial 

conversion costs associated with total redesigns and improvements to all production facilities. 

The total conversion cost required to meet standards at TSL 5 is approximately $713.7 million—

a $21.9 million increase from TSL 4. TSL 5 does not delay compliance for the more stringent 

standard either top-loading product class, so manufacturers will incur all product and capital 

conversion costs by 2015, leading to a larger negative impact on INPV. 

The MPC for top-loading standard residential clothes washers is approximately $317.44 

at TSL 5, and approximately $591.64 for front-loading standard residential clothes washers. This 

is a $69.79 (28.2 percent) and a $73.51 (14.2 percent) increase from the baseline for top and 

front-loading standard residential clothes washers, respectively. However, the increase in perunit production costs at TSL 5 relative to those at TSL 4 is comparatively small and involves 

only minimal incremental design options such as changes to load size sensors and more precise 

dispensing of laundry detergent and additives. With the increase in MPCs, 2015 shipments are 

forecast to decrease by approximately 4.4 percent at TSL 5. However, the impact on INPV 

arising from a decrease in shipments from price elasticity is minor in comparison to that 

stemming from product commoditization and margin impacts as analyzed in the tiered markup 

scenario with margin impacts. Where TSL 4 still provided some room for markups above the 

most basic units, TSL 5 sets the standard for all products as high as technically feasible, leaving 
12-49

manufacturers no ability to differentiate products by efficiency. Thus, all margins collapse to 

their lowest levels. 
12-50

REFERENCES

 

1 Association of Home Appliance Manufacturers. Current Members. Last Accessed December 

2, 2009. < http://www.aham.org/ht/d/Organizations/divisions/Y/pid/2344>.

2 Consortium of Energy Efficiency Clothes Washer Qualifying Products List.

<http://www.cee1.org/resid/seha/rwsh/rwsh-main.php3>

3 California Energy Commission. Appliance Efficiency Database.

<http://www.appliances.energy.ca.gov/QuickSearch.aspx>

4

ENERGY STAR. Qualified Clothes Washers. <

http://www.energystar.gov/index.cfm?fuseaction=find_a_product.showProductGroup&pgw_

code=CW >.

5 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of

Companies, 3rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000.